2020 Annual Report
Dear Fellow Stockholders,
At this time last year, we were just beginning to grasp the challenges that the COVID-19 pandemic would bring to our
industry and to our lives. In the year since, we have moved to remote work arrangements for most of our employees, halted
nearly all travel, customer visits and in-person events, weathered business interruptions at several of our suppliers, and
experienced a sharp decline in demand followed by a steep recovery that is now straining supply chains across our industry.
As of this writing, much of our workforce continues to work remotely as we prioritize the health of our employees and
comply with local regulations. I look forward to a full return to our offices as soon as we are able to do so safely, but in
the meantime I continue to be impressed with the creativity and dedication of our employees, who have not just kept our
business on track but also delivered the best results in our history in 2020.
Our approach to managing through the past year reflects the long-term, sustainable orientation that has always been a
cornerstone of our success. While some of our industry peers reduced headcount or cut salaries in the early stages of the
pandemic, we continued to invest in our people, giving normal salary raises, maintaining our generous health benefits, and
expanding our workforce by four percent during the year, with the largest increase coming in research and development.
(In fact, we hired a number of highly capable people let go by industry peers in the early stages of the pandemic.) We also
invested in production capacity and infrastructure, spending more than $70 million in capital last year, including nearly
$15 million on the construction of new facilities for our European operations and updates to our San José headquarters.
We plan to invest $12-$15 million more in 2021 to complete our European facilities and to expand our San José solar
array, roughly doubling our generating capacity.
We also built inventory as demand softened in the early stages of the pandemic, rising to 178 days on hand at the end of
the June quarter. Building inventory is something we can afford, knowing that our products have long shelf lives and are
fungible across applications and customers. It brings stability to our foundry relationships, helping to preserve our capacity,
and enables us to satisfy customers when demand recovers, as has happened over the past several months. Shortages of
semiconductor products have been a major news story of late, affecting the supply of appliances, cars, game consoles, TVs
and many other end products. In our case, inventories at our distributors are lower than normal and lead times have
extended for some of our newer products, but we’ve thus far been able to keep most customers’ production lines running
thanks to our timely capacity additions and our decision to build inventory last year amid falling demand.
Our bias toward long-term thinking is most evident in our approach to R&D. About a decade ago we increased our R&D
spending with an eye toward expanding our addressable market and developing more disruptive technologies. We did so
knowing that the fruits of these efforts would take many years to be fully realized, and I am excited about the years ahead
precisely because we are now beginning to see the pay-off from these long-term investments. One example is our gallium-
nitride, or GaN, technology. We were the first company to ship high-voltage GaN products in high volume when we
introduced GaN-based InnoSwitch™ products in 2018, and GaN-based products are now contributing meaningful
revenues, with about $10M in sales in 2020—a number that we expect to double or perhaps triple in 2021. Similarly, we
began development of our BridgeSwitch™ motor-driver ICs many years ago, and will see our first meaningful revenues
in 2021.
A few years ago we also began developing products for the automotive market, where significant revenues are likely still
several years away but where the opportunity is substantial. High-voltage is pervasive in electric vehicles (EVs), not just
in the drivetrain but also charging and, in next-generation vehicles, power supplies that will drive many of the subsystems
in the car from the main battery. In 2020 we qualified versions of our LinkSwitch™ and InnoSwitch products for
automotive use, and we continue to work closely with automakers on gate-driver products for EV drivetrains.
The investments we have made will enable us to continue benefiting from many of the secular trends that helped drive our
strong results in 2020. While revenues for the analog semiconductor industry grew just three percent for the year,1 our
revenues grew 16 percent, with growth in all four end-market categories. The consumer category, our largest end market
entering the year, grew about ten percent and finished strong, up nearly 20 percent year-over-year in the fourth quarter.
Appliances were the main source of growth, reflecting robust end-market demand and share gains at a broad range of
customers, as well as rising semiconductor content. Content growth is an important secular trend in appliances driven by
the proliferation of new features such as network connectivity, LED lighting and advanced displays, even as tighter energy-
efficiency standards challenge designers to do more with less power, which in turn drives even greater need for our
products.
1According to World Semiconductor Trade Statistics
In the industrial category, demand for our high-power gate-driver products was constrained last year by pandemic-driven
delays in infrastructure projects. However, lower revenues in high power were offset by growth in home-and-building
automation, battery-operated tools, and broad-based industrial applications, resulting in low-single-digit growth for the
overall category. Going forward, we expect our industrial business to benefit from secular trends such as renewable energy,
high-voltage DC transmission, electrification of transportation and tools, smart homes and buildings, and fixed USB
charging receptacles.
The communications category grew more than 30 percent for the year, while the smaller computer category grew even
faster, up nearly 50 percent. Some of this growth, particularly in the computer category, was the result of the work-from-
home and learn-from-home trends, which drove strong demand for PCs, tablets and monitors. Another key factor—one
sure to endure beyond the pandemic—is the rapid adoption of advanced chargers for smartphones, tablets and notebooks.
Power Integrations has demonstrated a commanding lead in terms of technology and product design for advanced chargers,
and that advantage is now translating into rapid growth in market share and revenue.
Not long ago, cellphone chargers were essentially commodities, and cost was the only variable that mattered. Today,
OEMs are thinking strategically about chargers, either as a value-added feature or a revenue-generating accessory, and a
wave of third-party after-market brands has emerged as well. We’ve seen this change coming for quite some time, and
we were ready for it thanks to the R&D investments we’ve made in technologies like GaN and revolutionary products
like InnoSwitch. In fact, while InnoSwitch ICs are used in a broad range of applications, their success in the high-volume
smartphone market has made them the highest-selling power-supply ICs in the world, with well over a billion units
shipped in the six years since their introduction.
The adoption of advanced chargers for smartphones accelerated last year and shows no signs of slowing. Even as 5G
phones demand higher-power chargers due to their larger batteries, many OEMs are pushing power levels even higher to
offer much faster charging as a way to differentiate their products. Meanwhile, we are seeing an unprecedented wave of
innovation in charger design, including an increasing number of chargers capable of powering two or more devices, and a
robust pipeline of designs with our GaN products. That includes our GaN-based InnoSwitch products as well as our MinE-
CAP™ ICs, which use GaN technology to reduce the size of chargers by enabling smaller input capacitors.
Thanks in large part to our record revenues in 2020, we generated $126 million in cash flow from operations, and further
strengthened our balance sheet, ending the year with $449 million in cash and investments. Reflecting our strong cash flow
and healthy balance sheet, our board of directors has increased our quarterly dividend 37% over the past four quarters,
with the payout increasing to 13 cents per share beginning in the March quarter. We also implemented a stock dividend in
August 2020, which effectively resulted in a two-for-one stock split. Our strong financial position gives us ample flexibility
to continue investing in our future growth while returning cash to stockholders in the years ahead.
Thank you for your continued support of our company—I look forward to reporting on our progress in the year ahead.
Sincerely,
Balu Balakrishnan
President and Chief Executive Officer
March 2021
The statements in this Annual Report relating to future events or results are forward-looking statements that involve many risks and uncertainties. In
some cases, forward-looking statements are indicated by the use of words such as “would,” “could,” “will,” “may,” “expect,” “believe,” “look
forward,” “anticipate,” “outlook,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “seek,” “scheduled,” “continue” and similar words
and phrases, including the negatives of these terms, or other variations of these terms. Our actual results could differ materially from those contained
in these forward-looking statements due to a number of factors, including: uncertainty and unexpected impacts of the COVID-19 pandemic; changes in
global macroeconomic conditions; potential changes and shifts in customer demand away from end products that utilize our products; the effects of
trade tensions and competition; the outcome and cost of patent litigation; unforeseen costs and expenses; and unfavorable fluctuations in component
costs resulting from changes in commodity prices and/or the exchange rate between the U.S. dollar and the Japanese yen. In addition, new product
introductions and design wins are subject to the risks and uncertainties that typically accompany development and delivery of complex technologies to
the marketplace, including product development delays and defects and market acceptance of the new products. These and other risk factors that may
cause actual results to differ are discussed in Part I, Item 1A — “Risk Factors” included in the Form 10-K which is part of this Annual Report. Also,
in the Form 10-K included in this Annual Report, common stock authorized as of December 31, 2020 was incorrectly presented as 280 million shares;
the correct number is 140 million shares.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission File Number 000-23441
POWER INTEGRATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of Incorporation or organization)
94-3065014
(I.R.S. Employer Identification No.)
5245 Hellyer Avenue
San Jose , California
(Address of principal executive offices)
95138-1002
(Zip code)
(408) 414-9200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock
Trading Symbol(s)
Name of Each Exchange on Which Registered
POWI
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ☐
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer
Non-accelerated Filer
☐
Accelerated Filer ☐
Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No
The aggregate market value of registrant’s voting and non-voting common stock held by non-affiliates of registrant on June 30, 2020, the last business
day of the registrant’s most recently completed second fiscal quarter, was approximately $2.6 billion, based upon the closing sale price of the common
stock as reported on The Nasdaq Global Select Market. Shares of common stock held by each officer and director have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status is not a conclusive determination for other purposes.
Outstanding shares of registrant’s common stock, $0.001 par value, as of February 2, 2021: 60,053,859.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Registrant’s
definitive proxy statement relating to the 2021 annual meeting of stockholders, which definitive proxy statement will be filed with the Securities and
Exchange Commission within 120 days after the fiscal year to which this Report relates.
POWER INTEGRATIONS, INC.
TABLE OF CONTENTS
PART I.
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16. FORM 10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV.
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Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes a number of forward-looking statements that involve many risks and
uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,”
“expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek” or
“continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that
denote future events. These statements reflect our current views with respect to future events and our potential financial
performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ
materially and/or adversely from what is projected or implied in any forward-looking statements included in this
Form 10-K. These factors include, but are not limited to: the novel coronavirus pandemic (COVID-19), which has
disrupted and may again disrupt our operations, including our manufacturing, research and development, and sales and
marketing activities, which in turn could have a material adverse impact on our business and has or could exacerbate the
risks discussed below; if demand for our products declines in our major end markets, our net revenues will decrease; our
products are sold through distributors, which limits our direct interaction with our end customers, therefore reducing our
ability to forecast sales and increasing the complexity of our business; we depend on third-party suppliers to provide us
with wafers for our products, and if they fail to provide us sufficient quantities of wafers, our business may suffer; intense
competition in the high-voltage power supply industry may lead to a decrease in our average selling price and reduced
sales volume of our products; if our products do not penetrate additional markets, our business will not grow as we expect;
we do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or reschedule
orders for our products, our operating results and our business may suffer; if we are unable to adequately protect or enforce
our intellectual property rights, we could lose market share, incur costly litigation expenses, suffer incremental price
erosion or lose valuable assets, any of which could harm our operations and negatively impact our profitability; and the
other risk factors described in Item 1A of Part I -- “Risk Factors” of this Form 10-K. We make these forward looking
statements based upon information available on the date of this Form 10-K, and expressly disclaim any obligation to update
or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by laws.
In evaluating these statements, you should specifically consider the risks described under Item 1A of Part I -- “Risk
Factors,” Item 7 of Part II -“Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and elsewhere in this Annual Report on Form 10-K.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant
subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K,
and while we believe such information forms a reasonable basis for such statements, such information may be limited or
incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review
of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not
to unduly rely upon these statements.
3
Item 1. Business.
Overview
PART I.
We design, develop and market analog and mixed-signal integrated circuits (ICs) and other electronic components
and circuitry used in high-voltage power conversion. Our products are used in power converters that convert electricity
from a high-voltage source to the type of power required for a specified downstream use. In most cases, this conversion
entails, among other functions, converting alternating current (AC) to direct current (DC) or vice versa, reducing or
increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.
A large percentage of our products are ICs used in AC-DC power supplies, which convert the high-voltage AC
from a wall outlet to the low-voltage DC required by most electronic devices. Power supplies incorporating our products
are used with all manner of electronic products including mobile phones, computing and networking equipment,
appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of
things” applications such as networked thermostats, power strips and security devices. We also supply high-voltage LED
drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-
driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-
appliance and light commercial applications.
We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical
isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors
(IGBTs) and silicon-carbide (SiC) MOSFETs. These combinations of switches and drivers are used for power conversion
in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors,
solar- and wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.
Our products bring a number of important benefits to the power-conversion market compared with less advanced
alternatives, including reduced component count and design complexity, smaller size, higher reliability and reduced time-
to-market. Our products also reduce the energy consumption of power converters during normal use and in “standby”
operation, when the end product is not in use. In addition to the environmental benefits of reduced energy usage, our
energy-saving technologies provide a number of benefits to our customers; these include helping them meet the
increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of
bulky heatsinks used to dissipate the heat produced by wasted electricity.
While the size of our addressable market fluctuates with changes in macroeconomic and industry conditions, the
market has generally exhibited a modest growth rate over time as growth in the unit volume of power converters has been
offset to a large degree by reductions in the average selling price of components in this market. Therefore, the growth of
our business depends largely on increasing our penetration of the markets that we serve and on further expanding our
addressable market. Our growth strategy includes the following elements:
•
Increase our penetration of the markets we serve. We currently address AC-DC applications with power
outputs up to approximately 500 watts, gate-driver applications ranging from a few kilowatts up to
gigawatts, and motor-drive applications up to approximately 400 watts. Through our research and
development efforts, we seek to introduce more advanced products for these markets offering higher
levels of integration and performance compared to earlier products. We also continue to expand our sales
and application-engineering staff and our network of distributors, as well as our offerings of technical
documentation and design-support tools and services to help customers use our products. These tools
and services include our PI Expert™ design software, which we offer free of charge, and our
transformer-sample service.
Our market-penetration strategy also includes capitalizing on the importance of energy efficiency and
renewable energy in the power conversion market. For example, our EcoSmart™ technology drastically
reduces the amount of energy consumed by electronic products when they are not in use, helping our
customers comply with regulations that seek to curb this so-called “standby” energy consumption. Also,
our gate-driver products are critical components in energy-efficient DC motor drives, high-voltage DC
transmission systems, solar and wind energy systems and electric transportation applications.
4
•
Increase the size of our addressable market. Prior to 2010 our addressable market consisted of AC-DC
applications with up to about 50 watts of output, a served available market (SAM) opportunity of
approximately $1.5 billion. Since that time we have expanded our SAM to more than $4 billion through
a variety of means. These include the introduction of products that enable us to address higher-power
AC-DC applications (such as our Hiper™ product families), the introduction of LED-driver products,
and our entry into the gate-driver market through the acquisition of CT-Concept Technologie AG in
2012. In 2016 we introduced the SCALE-iDriverTM family of ICs, broadening the range of gate-driver
applications we can address, and in 2018 we introduced our BridgeSwitch™ motor-driver ICs,
addressing BLDC motors, as described above. We have recently introduced a series of automotive-
qualified versions of our products, including SCALE-iDriver, InnoSwitch™ and LinkSwitch™ ICs,
targeting the EV market; we expect to introduce additional products targeting EVs in the future, and
expect automotive applications to become a significant portion of our SAM over time.
Also contributing to our SAM expansion has been the emergence of new applications within the power
ranges that our products can address. For example, applications such as “smart” utility meters, battery-
powered lawn equipment and bicycles, and USB power receptacles (often installed alongside traditional
AC wall outlets) can incorporate our products. The increased use of electronic intelligence and
connectivity in consumer appliances has also enhanced our SAM.
Finally, we have enhanced our SAM through the development of new technologies that increase the
value (and therefore the average selling prices) of our products. For example, our InnoSwitch™ ICs
integrate circuitry from the secondary, or low-voltage, side of AC-DC power supplies, whereas earlier
product families integrated circuitry only on the primary, or high-voltage side. In 2019 we began
incorporating proprietary gallium-nitride (GaN) transistors in some our products, enabling a higher level
of energy efficiency than ICs with traditional silicon transistors.
We intend to continue expanding our SAM in the years ahead through all of the means described above.
Industry Background
Virtually every electronic device that plugs into a wall socket requires a power supply to convert the high-voltage
alternating current provided by electric utilities into the low-voltage direct current required by most electronic devices. A
power supply may be located inside a device, such as a consumer appliance or flat-panel TV, or it may be outside the
device as in the case of a mobile-phone charger or an adapter for a cordless phone or cable modem.
Until approximately 1970, AC-DC power supplies were generally in the form of line-frequency, or linear,
transformers. These devices, consisting primarily of copper wire wound around an iron core, tend to be bulky and heavy,
and typically waste a substantial amount of electricity. In the 1970s, the availability of high-voltage discrete
semiconductors enabled the development of a new generation of power supplies known as switched-mode power supplies,
or switchers. These switchers generally came to be cost-effective alternatives to linear transformers in applications
requiring more than a few watts of power; in recent years the use of linear transformers has declined even further as a
result of energy-efficiency standards and higher raw-material prices.
Switchers are generally smaller, lighter-weight and more energy-efficient than linear transformers. However,
switchers designed with discrete components are highly complex, containing numerous components and requiring a high
level of analog design expertise. Further, the complexity and high component count of discrete switchers make them
relatively costly, difficult to manufacture and prone to failures. Also, some discrete switchers lack protection and energy-
efficiency features; adding these features may further increase the component count, cost and complexity of the power
supply.
In high-power systems such as industrial motor drives, electric locomotives and renewable-energy systems, power
conversion is typically performed using arrays of high-power silicon transistors known as IGBT modules; these modules
are operated by electronic circuitry known as gate drivers (or IGBT drivers), whose function is to ensure accurate, safe
and reliable operation of the IGBT modules. Much like discrete power supplies, discrete gate drivers tend to be highly
complex, requiring a large number of components and a great deal of design expertise.
5
Our Highly Integrated Approach
In 1994 we introduced TOPSwitch, the industry’s first cost-effective high-voltage IC for switched-mode AC-DC
power supplies. We have since introduced a range of other product families, expanding the range of power-supply
applications we can serve and enhancing our competitiveness in applications that we already addressed. In 2012 we
expanded our addressable market to include high-voltage gate drivers.
Our ICs and gate drivers drastically reduce the complexity and component count of power converters compared
to typical discrete designs by integrating many of the functions otherwise performed by numerous discrete electronic
components, and by eliminating (or reducing the size and cost of) additional components through innovative system
design. As a result, our products enable power converters to have superior features and functionality at a total cost equal
to or lower than that of many competing alternatives. Our products offer the following key benefits:
•
Fewer Components, Reduced Size and Higher Reliability
Our highly integrated ICs and gate drivers enable designs with up to 70% fewer components than comparable
discrete designs. This reduction in component count enhances reliability and efficiency, reduces size, and results in lower
manufacturing costs for our customers. Power supplies that incorporate our ICs are also lighter and more portable than
comparable power supplies built with linear transformers, which are still used in some low-power applications.
•
Reduced Time-to-Market, Enhanced Manufacturability
Because our products eliminate much of the complexity associated with the design of power converters, designs
can typically be completed in much less time, resulting in more efficient use of our customers’ design resources and shorter
time-to-market for new designs. The lower component count and reduced complexity enabled by our products also makes
designs more suitable for high-volume manufacturing. We also provide extensive hands-on design support as well as
online design tools, such as our PI Expert design software, that further reduce time-to-market and product development
risks.
•
Energy Efficiency
Our patented EcoSmart technology, introduced in 1998, improves the energy efficiency of electronic devices
during normal operation as well as standby and “no-load” conditions. This technology enables manufacturers to cost-
effectively meet the growing demand for energy-efficient products, and to comply with increasingly stringent energy-
efficiency requirements. Also, our GaN transistor technology, introduced in 2019, offers substantially higher levels of
active-mode efficiency compared to traditional silicon-based switches, while our BridgeSwitch motor-driver ICs enable
efficiency of up to 98.5 percent, not only minimizing waste but also eliminating the need for heatsinks in many
applications, which in turn reduces cost and weight.
•
Wide Power Range and Scalability
Products in our current IC families can address AC-DC power supplies with output power up to approximately
500 watts as well as some high-voltage DC-DC applications; our high-voltage gate drivers are used in applications with
power levels as high as one gigawatt, while our motor-driver ICs address BLDC applications up to 300 watts. Within each
of our product families, designers can scale up or down in power to address a wide range of designs with minimal design
effort.
Energy Efficiency
Power supplies often draw significantly more electricity than the amount needed by the devices they power. As
a result, billions of dollars’ worth of electricity is wasted each year, and millions of tons of greenhouse gases are
unnecessarily produced by power plants. Energy waste occurs during the normal operation of a device and in standby
mode, when the device is plugged in but idle. For example: computers and printers waste energy while in “sleep” mode;
TVs that are turned off by remote control consume energy while awaiting a remote-control signal to turn them back on; a
mobile-phone charger left plugged into a wall outlet continues to draw electricity even when not connected to the phone
(a condition known as “no-load”); and many common household appliances, such as microwave ovens, dishwashers and
washing machines, also consume power when not in use. In fact, a 2015 study by the National Resources Defense Council
found that devices that are “always-on” but inactive may be causing as much as $19 billion in annual energy waste in the
United States alone.
6
Lighting is another major source of energy waste. Less than 5% of the energy consumed by traditional
incandescent light bulbs is converted to light, while the remainder is wasted as heat. The Alliance to Save Energy has
estimated that a conversion to efficient lighting technologies such as compact fluorescent bulbs and LEDs could save as
much as $18 billion worth of electricity and 158 million tons of carbon dioxide emissions per year in the United States
alone.
In response to concerns about the environmental impact of carbon emissions, policymakers have taken action to
promote energy efficiency. For example, the ENERGY STAR® program and the European Union Code of Conduct
encourage manufacturers of electronic devices to comply with voluntary energy-efficiency specifications. In 2007 the
California Energy Commission (CEC) implemented mandatory efficiency standards for external power supplies. The CEC
standards were implemented nationwide in the United States in July 2008 as a result of the Energy Independence and
Security Act of 2007 (EISA); these federal standards were tightened in 2016. Similar standards for external power supplies
took effect in the European Union in 2010 as part of the EU’s EcoDesign Directive for Energy-Related Products.
In 2010, the EU EcoDesign Directive implemented standards limiting standby power consumption on a wide
range of electronic products. The limit was reduced by 50 percent beginning in 2013, with many products now limited to
500 milliwatts of standby usage; further tightening of the standards is under consideration. The EISA legislation also
required substantial improvements in the efficiency of lighting technologies beginning in 2012; as of 2014, traditional
100-, 75-, 60- and 40-watt bulbs are no longer permitted to be manufactured or sold in the United States. Plans to eliminate
conventional incandescent bulbs have also been announced or enacted in other geographies such as Canada, Australia and
Europe. In December 2019 the government of China published new efficiency standards for room air conditioners, which
took effect on July 1, 2020.
We believe we offer products that enable manufacturers to meet or exceed these regulations, and all other such
regulations of which we are aware. Our EcoSmart technology, introduced in 1998, dramatically reduces waste in both
operating and standby modes; we estimate that this technology has saved billions of dollars’ worth of standby power
worldwide since 1998. In 2010 we introduced our CapZero and SenZero IC families, which eliminate additional sources
of standby waste in some power supplies; we also offer a range of products designed specifically for LED-lighting
applications.
Products
Below is a brief description of our products:
•
AC-DC power conversion products
TOPSwitch, our first commercially successful product family, was introduced in 1994. Since that time we have
introduced a wide range of products (such as our TinySwitch, LinkSwitch and Hiper families) to increase the level of
integration and improve upon the functionality of the original TOPSwitch, and to broaden the range of power levels we
can address. In 2010 we introduced our CapZero and SenZero families, which reduce standby power consumption in
certain applications by eliminating waste caused by so-called bleed resistors and sense resistors. We have also introduced
products designed specifically for LED-lighting applications, known as LYTSwitch ICs, as well as a range of high-
performance, high-voltage diodes known as Qspeed diodes.
In 2014 we introduced our InnoSwitch product family, the first power-supply ICs to combine primary, secondary
and feedback circuits into a single package. These ICs employ a proprietary technology known as FluxLink to enable
precise control without the need for optical components, which tend to add cost and diminish the reliability of power
supplies.
This portfolio of power-conversion products generally addresses power supplies ranging from less than one watt
of output up to approximately 500 watts of output, a market we refer to as the “low-power” market. This market consists
of an extremely broad range of applications including mobile-device chargers, consumer appliances, utility meters, LCD
monitors, main and standby power supplies for desktop computers and TVs, and numerous other consumer and industrial
applications, as well as LED lighting.
•
High-voltage gate drivers
We offer a range of high-voltage gate-driver products sold primarily under the SCALE and SCALE-2 product-
family names. These products are fully assembled circuit boards incorporating multiple ICs, electrical isolation
7
components and other circuitry. We offer both ready-to-operate “plug-and-play” drivers designed specifically for use with
particular IGBT modules, as well as “driver cores,” which provide more basic driver functionality that customers can
customize to their own specifications after purchase. In May 2016 we introduced the SCALE-iDriver family of standalone
ICs, which enables us to address applications ranging from a few kilowatts up to about 100 kilowatts, whereas previously
our sales of high-power products were primarily for applications above 100 kilowatts.
•
Motor-driver products
The BridgeSwitch family of products, introduced in 2018, is a family of motor-driver ICs addressing BLDC
motor applications up to approximately 400 watts. Such applications include refrigerator compressors, ceiling fans, air
purifiers as well as pumps, fans and blowers used in consumer appliances such as dishwashers and laundry machines.
Other Product Information
TOPSwitch, TinySwitch, LinkSwitch, DPA-Switch, EcoSmart, Hiper, Qspeed, InnoSwitch, BridgeSwitch,
SCALE, SCALE-II, SCALE-III, SCALE-iDriver, PeakSwitch, CAPZero, SENZero, ChiPhy, FluxLink, CONCEPT and
PI Expert are trademarks of Power Integrations, Inc.
End Markets and Applications
Our net revenues consist primarily of sales of the products described above. When evaluating our net revenues,
we categorize our sales into the following four major end-market groupings: communications, computer, consumer, and
industrial.
The table below provides the approximate mix of our net sales by end market:
End Market
Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2019
26 %
5 %
35 %
34 %
2020
30 %
7 %
33 %
30 %
2018
20 %
5 %
38 %
37 %
Our products are used in a vast range of power-conversion applications in the above-listed end-market categories.
The following chart lists the most prominent applications for our products in each category.
Market Category
Communications . . Mobile-phone chargers, adaptors for routers, cordless phones, broadband modems, voice-over-IP
Primary Applications
Computer . . . . . . . . Desktop PCs and monitors, servers, adapters for tablets and notebook computers, other computer
phones, other network and telecom gear
Consumer . . . . . . . Major and small appliances, air conditioners, TV set-top boxes, digital cameras, TVs, video-game
peripherals
consoles
Industrial . . . . . . . . Industrial controls, LED lighting, utility meters, motor controls, uninterruptible power supplies,
battery-powered tools, networked thermostats, power strips and other “smart home” devices,
industrial motor drives, renewable energy systems, electric locomotives, electric buses and other
electric vehicles, high-voltage DC transmission systems
Sales, Distribution and Marketing
We sell our products to original equipment manufacturers, or OEMs, and merchant power-supply manufacturers
through our direct sales staff and a worldwide network of independent sales representatives and distributors. We have sales
offices in the United States, United Kingdom, Germany, Italy, India, China, Japan, South Korea, the Philippines, Singapore
and Taiwan. Direct sales to OEMs and merchant power supply manufacturers represented approximately 25%, 28% and
25% of our net product revenues in 2020, 2019 and 2018, respectively, while sales to distributors accounted for the
remainder in each of the corresponding years. Most of our distributors are entitled to return privileges based on revenues
and are protected from price reductions affecting their inventories. Our distributors are not subject to minimum purchase
requirements, and sales representatives and distributors can discontinue marketing our products at any time.
8
Our sales are primarily made pursuant to standard purchase orders. The quantity of products purchased by our
customers as well as shipment schedules are subject to revisions that reflect changes in both the customers’ requirements
and in manufacturing availability. Historically, our business has been characterized by short-lead-time orders and quick
delivery schedules.
Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers,
accounted for approximately 62%, 54% and 56% of net revenues in 2020, 2019 and 2018, respectively. In 2020, two
distributors accounted for more than 10% of revenues. In 2019 and 2018, one of these distributors accounted for more than
10% of revenues.
Research and Development
Our research and development efforts are focused on improving our technologies, introducing new products to
expand our addressable markets, reducing the costs of existing products, and improving the cost-effectiveness and
functionality of our customers’ power converters. We have assembled teams of highly skilled engineers to meet our
research and development goals. These engineers have expertise in high-voltage device structure and process technology,
analog and digital IC design, system architecture and packaging.
Intellectual Property and Other Proprietary Rights
We use a combination of patents, trademarks, copyrights, trade secrets and confidentiality procedures to protect
our intellectual-property rights. In 2020 we received 29 U.S. and 54 foreign patents. As of December 31, 2020, we held
450 U.S. patents and 360 foreign patents. Both U.S. and foreign patents have expiration dates ranging from 2021 to 2041.
While our patent portfolio as a whole is important to the success of our business, we are not materially dependent upon
any single patent. We also hold trademarks in the U.S. and various other geographies including Taiwan, Korea, Hong
Kong, China, Europe, Japan, India, and Brazil.
We regard as proprietary some equipment, processes, information and knowledge that we have developed and
used in the design and manufacture of our products. Our trade secrets include a high-volume production process used in
the manufacture of our high-voltage ICs. We attempt to protect our trade secrets and other proprietary information through
non-disclosure agreements, proprietary-information agreements with employees and consultants, and other security
measures.
Manufacturing
We contract with three foundries for the manufacture of the vast majority of our silicon wafers: (1) Lapis
Semiconductor Co., Ltd., or Lapis, (formerly OKI Electric Industry), (2) Seiko Epson Corporation, or Epson, (3) X-FAB
Semiconductor Foundries AG, or X-FAB. These contractors manufacture wafers using our proprietary high-voltage
process technologies at fabrication facilities located in Japan, Germany and the United States.
Our ICs are assembled, packaged and tested by independent subcontractors in China, Malaysia, Thailand and the
Philippines; a small percentage of our ICs are tested at our headquarters facility in California. Our gate-driver boards are
assembled and tested by independent subcontractors in Sri Lanka and Thailand; some of the boards are tested at our facility
in Switzerland.
Our fabless manufacturing model enables us to focus on our engineering and design strengths, minimize capital
expenditures and still have access to high-volume manufacturing capacity. We utilize both proprietary and standard IC
packages for assembly. Some of the materials used in our packages and certain aspects of the assembly process are specific
to our products. We require our assembly manufacturers to use high-voltage molding compounds which are more difficult
to process than industry standard molding compounds. We work closely with our contractors on a continuous basis to
maintain and improve our manufacturing processes.
Our proprietary high-voltage processes do not require leading-edge geometries, which enables us to use our
foundries’ older, lower-cost facilities for wafer manufacturing. However, because of our highly sensitive high-voltage
process, we must interact closely with our foundries to achieve satisfactory yields. Our wafer supply agreements with
Lapis, Epson and X-FAB expire in April 2028, December 2025 and December 2028, respectively. Under the terms of the
Lapis and Epson agreements, each supplier has agreed to reserve a specified amount of production capacity and to sell
wafers to us at fixed prices, which are subject to periodic review jointly by the supplier and us. In addition, Lapis and
9
Epson require us to supply them with a rolling six-month forecast on a monthly basis. Our agreements with Lapis and
Epson each provide for the purchase of wafers in U.S. dollars, with mutual sharing of the impact of the fluctuations in the
exchange rate between the Japanese yen and the U.S. dollar. Under the terms of the X-FAB agreement, X-FAB has agreed
to reserve a specified amount of production capacity and to sell wafers to us at fixed prices, which are subject to periodic
review jointly by X-FAB and us. The agreement with X-FAB also requires us to supply them with rolling six-month
forecasts on a monthly basis. Our purchases of wafers from X-FAB are denominated in U.S. dollars.
Although some aspects of our relationships with Lapis, Epson and X-FAB are contractual, some important aspects
of these relationships are not written in binding contracts and depend on the suppliers’ continued cooperation. We cannot
assure that we will continue to work successfully with Lapis, Epson or X-FAB in the future, that they will continue to
provide us with sufficient capacity at their foundries to meet our needs, or that any of them will not seek an early
termination of their wafer supply agreement with us. Our operating results could suffer in the event of a supply disruption
with one or more of our foundries if we were unable to quickly qualify alternative manufacturing sources for existing or
new products or if these sources were unable to produce wafers with acceptable manufacturing yields.
We typically receive shipments from our foundries approximately four to six weeks after placing orders, and lead
times for new products can be substantially longer. To provide sufficient time for assembly, testing and finishing, we
typically need to receive wafers four weeks before the desired ship date to our customers. As a result of these factors and
the fact that customers’ orders can be placed with little advance notice, we have only a limited ability to react to fluctuations
in demand for our products. We try to carry a substantial amount of wafer and finished-goods inventory to help offset
these risks and to better serve our markets and meet customer demand.
Competition
Competing alternatives to our high-voltage ICs for the power-supply market include monolithic and hybrid ICs
from companies such as ON Semiconductor, STMicroelectronics, Infineon, and Sanken Electric Company, as well as
PWM-controller chips paired with discrete high-voltage bipolar transistors and MOSFETs; such controller chips are
produced by a large number of vendors, including those listed above as well as such companies as NXP Semiconductors,
Diodes Inc., On-Bright Electronics and Dialog Semiconductor. Self-oscillating switchers, built with discrete components
supplied by numerous vendors, are also commonly used. For some applications, line-frequency transformers are also a
competing alternative to designs utilizing our products. Our gate-driver products compete with alternatives from such
companies as Avago, Infineon and Semikron, as well as driver circuits made up of discrete devices. Our motor-driver ICs
compete with alternatives from such companies as ON Semiconductor, Infineon, STMicroelectronics and Sanken Electric
Company.
Generally, our products enable customers to design power converters with total bill-of-materials costs similar to
those of competing alternatives. As a result, the value of our products is influenced by the prices of discrete components,
which fluctuate in relation to market demand, raw-material prices and other factors, but have generally decreased over
time.
While we vary the pricing of our ICs in response to fluctuations in prices of alternative solutions, we also compete
based on a variety of other factors. Most importantly, the highly integrated nature of our products enables designs that
utilize fewer total components than comparable discrete designs or designs using other integrated or hybrid products. This
enables power converters to be designed more quickly and manufactured more efficiently and reliably than competing
designs. We also compete on the basis of product functionality such as safety features and energy-efficiency features and
on the basis of the technical support we provide to our customers. This support includes hands-on design assistance as
well as a range of design tools and documentation such as software and reference designs. We also believe that our record
of product quality and history of delivering products to our customers on a timely basis serve as additional competitive
advantages.
Warranty
We generally warrant that our products will substantially conform to the published specifications for 12 months
from the date of shipment. Under the terms and conditions of sale, our liability is limited generally to either a credit equal
to the purchase price or replacement of the defective part.
10
Human Capital
As of December 31, 2020, we employed 725 full-time personnel across 14 countries with 363, or 50% of the
total, residing in North America, while 50% resided offshore comprising 259 in the Asia-Pacific region and 103 across
Europe, Middle East and Africa. As of December 31, 2020, 5% of our worldwide employees were foreign nationals,
defined as individuals requiring employment visas in the countries where they are employed. Women comprise more than
40% of our U.S. non-technical workforce. The ethnic makeup of our U.S. workforce is approximately as follows: 60%
Asian; 29% white; 7% Hispanic or Latino; 4% other.
Innovation is the lifeblood of our company, and we depend on our people to sustain our competitive advantage.
We offer attractive compensation with generous comprehensive benefits for employees and dependents (including
domestic partners), including health, dental and vision insurance, matching 401(k) contributions, employee stock plans,
paid time off and family leave, life insurance, flu vaccinations, charitable gift matching, a health-and-wellness program
designed to promote physical well-being, and an employee assistance program and other mental health services.
Approximately 97% of eligible U.S. employees participate in our 401(k) plan. These benefits, combined with our culture
of innovation and sustainable growth, contribute to low employee turnover and an average tenure of nearly 10 years.
It is our policy to ensure equal employment opportunity for all applicants and employees without regard to
prohibited considerations of race, color, religion, sex (including pregnancy, gender identity and sexual orientation),
national origin, age, disability or genetic information, marital status or any other classification protected by applicable
local, state or federal laws. Our employees are encouraged to engage with company leadership and raise concerns and
questions in-person, via e-mail (anonymously if desired), or at our quarterly employee communications meeting with the
CEO and senior management team. All employees receive training in the prevention of sexual harassment and abusive
conduct in the workplace.
We value our employees, giving them the tools and training to grow as individuals, and the freedom to take risks
in the service of innovation. We offer tuition reimbursement for job-related education and provide live and online classes
covering topics such as communication, leadership and management, software, and time management. Subject to
restrictions due to the current COVID-19 pandemic, we also offer catered lunch-time workshops on a range of personal-
development topics such as financial planning, nutrition and stress management.
Additional information regarding our commitment to our people can be found on our website at
https://www.power.com/company/sustainability-citizenship/.
Investor Information
We make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after filing this material electronically or otherwise furnishing it to the
SEC. Investors may obtain free electronic copies or request paper copies of these reports via the “For Investors” section
of our website, www.power.com. Our website address is provided solely for informational purposes. We do not intend, by
this reference, that our website should be deemed to be part of this Annual Report. The reports we file with the SEC are
also available at www.sec.gov.
Our corporate governance guidelines, the charters of our board committees, and our code of business conduct and
ethics, including ethics provisions that apply to our principal executive officer, principal financial officer, controller and
senior financial officers, are also available via the investor website listed above. These items are also available in print to
any stockholder who requests them by calling (408) 414-9200. We intend to satisfy the disclosure requirements of
Form 8-K regarding an amendment to, or a waiver from, a provision of our code of business conduct and ethics that applies
to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons
performing similar functions by posting such information on our investor website listed above.
Power Integrations, Inc. was incorporated in California on March 25, 1988, and reincorporated in Delaware in
December 1997.
11
Information About Our Executive Officers
As of February 1, 2021, our executive officers, who are appointed by and serve at the discretion of the board of
directors, were as follows:
Position With Power Integrations
Name
Balu Balakrishnan . . . . . . . . . . . . . . . . . . . . . . . . . . . President, Chief Executive Officer and Director
Douglas Bailey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Marketing
Radu Barsan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Technology
Sunil Gupta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Operations
David “Mike” Matthews . . . . . . . . . . . . . . . . . . . . . . Vice President, Product Development
Sandeep Nayyar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Finance and Chief Financial Officer
Ben Sutherland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Worldwide Sales
Clifford Walker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Corporate Development
Age
66
54
68
48
56
61
49
69
Balu Balakrishnan has served as president and chief executive officer and as a director of Power Integrations
since January 2002. He served as president and chief operating officer from April 2001 to January 2002. From
January 2000 to April 2001, he was vice president of engineering and strategic marketing. From September 1997 to
January 2000, he was vice president of engineering and new business development. From September 1994 to
September 1997, Mr. Balakrishnan served as vice president of engineering and marketing. Prior to joining Power
Integrations in 1989, Mr. Balakrishnan was employed by National Semiconductor Corporation.
Douglas Bailey has served as our vice president of marketing since November 2004. From March 2001 to
April 2004, he served as vice president of marketing at ChipX, a structured-ASIC company. His earlier experience includes
serving as business management and marketing consultant for Sapiential Prime, Inc., director of sales and business unit
manager for 8x8, Inc., and serving in application engineering management for IIT, Inc. and design engineering roles with
LSI Logic, Inmos, Ltd. and Marconi.
Radu Barsan has served as our vice president of technology since January 2013, leading our foundry engineering,
technology development and quality organizations. Prior to joining Power Integrations, Dr. Barsan served as chairman and
CEO at Redfern Integrated Optics, Inc., a supplier of single-frequency narrow-linewidth lasers, modules, and subsystems,
from 2001 to 2013. Previously, he served in a succession of engineering-management and technology-development roles
at Phaethon Communications, Inc., a photonics technology company, Cirrus Logic, Inc., a high-precision analog and
digital signal processing company, Advanced Micro Devices, a semiconductor design company, Cypress
Semiconductor, Inc., a semiconductor company and Microelectronica, a semiconductor company. Dr. Barsan has 40 years
of commercial experience in semiconductor and photonic components development, engineering and operations.
Sunil Gupta has served as our vice president of operations since August 2020. Prior to joining Power Integrations,
Mr. Gupta was vice president of operations at Renesas Electronics Corporation, a provider of electronics solutions, from
July 2017 until August 2020, in which position he was responsible for global operations for Intersil and IDT products as
well as the integration into the operations of Renesas. Prior to joining Renesas he was Senior Vice President, Global
Operations at Intersil Corporation, a developer of power management and precision analog integrated circuits, from June
2016 to July 2017, in which position he led the global operations and technology teams, and was Vice President, Quality
and Technology Development at Intersil was from September 2013 to June 2016, in which position he led the quality,
reliability, yield, process technology and package technology teams. Mr. Gupta joined Intersil in 2012 as its Vice
President, Quality and Reliability. Prior to joining Intersil, Mr. Gupta was the Director of Worldwide Customer Quality
Engineering at Qualcomm, and prior to Qualcomm Mr. Gupta spent 16 years at National Semiconductor in wafer fab
operations and quality.
Mike Matthews has served as our vice president of product development since August 2012. Mr. Matthews joined
Power Integrations in 1992, managing our European application-engineering group and then our European sales
organization as managing director of Power Integrations (Europe). He has led our product-definition team since 2000,
serving as director of strategic marketing prior to assuming his current role. Prior to joining Power Integrations,
Mr. Matthews worked at several electric motor-drive companies and then at Siliconix, a semiconductor company, as a
motor-control applications specialist.
12
Sandeep Nayyar has served as our vice president and chief financial officer since June 2010. From 2002 to 2009
Mr. Nayyar served as vice president of finance at Applied Biosystems, Inc., a developer and manufacturer of life-sciences
products, where he was a member of the executive team with world-wide responsibilities for finance. From 1990 to 2001,
Mr. Nayyar served in a succession of financial roles including vice president of finance at Quantum Corporation, a
computer storage company. Mr. Nayyar also worked for five years in the public-accounting field at Ernst & Young LLP.
Mr. Nayyar is a Certified Public Accountant, Chartered Accountant and has a Bachelor of Commerce from the University
of Delhi, India. Since 2014, Mr. Nayyar has served as a director and audit-committee chairman of Smart Global Holdings,
Inc., a manufacturer of specialty memory solutions; in 2021 he was named lead independent director.
Ben Sutherland has served as our vice president, worldwide sales since July 2011. Mr. Sutherland joined our
company in May 2000 as a member of our sales organization in Europe. From May 2000 to July 2011, Mr. Sutherland
served in various sales positions responsible primarily for our international sales, and more recently for domestic sales.
From 1997 to 2000, Mr. Sutherland served in various product marketing and sales roles at Vishay Intertechnology, Inc., a
manufacturer and supplier of discrete semiconductors and passive electronic components.
Clifford Walker has served as our vice president, corporate development since June 1995. From September 1994
to June 1995, Mr. Walker served as vice president of Reach Software Corporation, a software company. From
December 1993 to September 1994, Mr. Walker served as president of Morgan Walker International, a consulting
company.
Item 1A. Risk Factors.
The following are important factors that could cause actual results or events to differ materially from those
contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem immaterial
also may impair our business operations. If any of the following risks or such other risks actually occurs, our business
could be harmed.
Risks Related to Ownership of Our Common Stock
Our operating results are volatile and difficult to predict. If we fail to meet the expectations of public market
analysts or investors, the market price of our common stock may decrease significantly. Our net revenues and operating
results have varied significantly in the past, are difficult to forecast, are subject to numerous factors both within and outside
of our control, and may fluctuate significantly in the future. As a result, our operating results could fall below the
expectations of public market analysts or investors. If that occurs, the price of our stock may decline.
Some of the factors that could affect our operating results include the following:
•
we face risks related to the Novel Coronavirus pandemic (COVID-19), which has disrupted and may
again disrupt our operations, including our manufacturing, research and development, and sales and
marketing activities, which could have a material adverse impact on our business, financial condition,
operating results and cash flows;
•
•
•
•
•
•
•
•
the volume and timing of delivery of orders placed by us with our wafer foundries and assembly
subcontractors, and their ability to procure materials;
the volume and timing of orders received from customers;
our products are sold through distributors, which limits our direct interaction with our end customers,
which reduces our ability to forecast sales and increases the complexity of our business;
reliance on international sales activities for a substantial portion of our net revenues;
competitive pressures on selling prices;
the ability of our products to penetrate additional markets;
our ability to develop and bring to market new products and technologies on a timely basis;
the lengthy timing of our sales cycle;
13
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the demand for our products declining in the major end markets we serve, which may occur due to
competitive factors, supply-chain fluctuations or changes in macroeconomic conditions;
our ability to attract and retain qualified personnel;
interruptions in our information technology systems;
earthquakes, terrorists acts, pandemic or other disasters;
fluctuations in exchange rates, particularly the exchange rate between the U.S. dollar and the Japanese
yen, the Euro and the Swiss franc;
the inability to adequately protect or enforce our intellectual property rights;
expenses we are required to incur (or choose to incur) in connection with our intellectual property
litigations;
undetected defects and failures in meeting the exact specifications required by our products;
risks associated with acquisitions and strategic investments;
our ability to successfully integrate, or realize the expected benefits from, our acquisitions; and
changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or
unfavorable assessments from tax audits may increase the amount of taxes we are required to pay;
changes in environmental laws and regulations, including with respect to energy consumption and
climate change;
continued impact of changes in securities laws and regulations, including potential risks resulting from
our evaluation of our internal controls over financial reporting; and
uncertainties arising out of economic consequences of current and potential military actions or terrorist
activities and associated political instability.
Risks Related to the Operation and Growth of Our Business
We face risks related to the Novel Coronavirus pandemic (COVID-19), which has disrupted and may again
disrupt our operations, including our manufacturing, research and development, and sales and marketing activities, which
could have a material adverse impact on our business, financial condition, operating results and cash flows. Our business
as well as the business of our suppliers, customers and distributors have been and may continue to be adversely impacted
by the world-wide response to COVID-19 such as public health measures, travel restrictions, business shutdowns, border
closures, delivery and freight delays and other disruptions. These disruptions may adversely affect not only our sales and
marketing activities, product development, manufacturing and product shipments which could negatively impact our
ability to meet customer commitments but also our customers’ ability to manufacture their products, which could reduce
their demand for our products. The effects of the pandemic have resulted in a significant economic downturn in local and
global economies, as well as a significant downturn in financial markets, and the continuing pandemic could result in
further significant economic downturns which may result in reduced end-customer demand and materially impact our
revenues. All of these effects could have a material adverse effect on our customer relationships, operating results, cash
flows, financial condition and have a negative impact on our stock price.
We depend on third-party suppliers to provide us with wafers for our products and if they fail to provide us
sufficient quantities of wafers, our business may suffer. Our primary supply arrangements for the production of wafers are
with Epson, Lapis, and X-FAB. Our contracts with these suppliers expire on varying dates, with the earliest to expire in
December 2025. Although some aspects of our relationships with Lapis, X-FAB and Epson are contractual, many
important aspects of these relationships depend on their continued cooperation. We cannot assure that we will continue to
work successfully with Epson, Lapis and X-FAB in the future, and that the wafer foundries’ capacity will meet our needs.
Additionally, one or more of these wafer foundries could seek an early termination of our wafer supply agreements. Any
serious disruption in the supply of wafers from Epson, Lapis and X-FAB could harm our business. We estimate that it
would take 12 to 24 months from the time we identified an alternate manufacturing source to produce wafers with
acceptable manufacturing yields in sufficient quantities to meet our needs.
14
Although we provide our foundries with rolling forecasts of our production requirements, their ability to provide
wafers to us is ultimately limited by the available capacity of the wafer foundry. Any reduction in wafer foundry capacity
available to us could require us to pay amounts in excess of contracted or anticipated amounts for wafer deliveries or
require us to make other concessions to meet our customers’ requirements, or may limit our ability to meet demand for
our products. Further, to the extent demand for our products exceeds wafer foundry capacity, this could inhibit us from
expanding our business and harm relationships with our customers. Any of these concessions or limitations could harm
our business.
If our third-party suppliers and independent subcontractors do not produce our wafers and assemble our finished
products at acceptable yields, our net revenues may decline. We depend on independent foundries to produce wafers, and
independent subcontractors to assemble and test finished products, at acceptable yields and to deliver them to us in a timely
manner. The failure of the foundries to supply us wafers at acceptable yields could prevent us from selling our products to
our customers and would likely cause a decline in our net revenues and gross margin. In addition, our IC assembly process
requires our manufacturers to use a high-voltage molding compound that has been available from only a few suppliers.
These compounds and their specified processing conditions require a more exacting level of process control than normally
required for standard IC packages. Unavailability of assembly materials or problems with the assembly process can
materially and adversely affect yields, timely delivery and cost to manufacture. We may not be able to maintain acceptable
yields in the future.
In addition, if prices for commodities used in our products increase significantly, raw material costs would
increase for our suppliers which could result in an increase in the prices our suppliers charge us. To the extent we are not
able to pass these costs on to our customers; this would have an adverse effect on our gross margins.
We do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or
reschedule orders for our products, our operating results and our business may suffer. Our business is characterized by
short-term customer orders and shipment schedules, and the ordering patterns of some of our large customers have been
unpredictable in the past and will likely remain unpredictable in the future. Not only does the volume of units ordered by
particular customers vary substantially from period to period, but also purchase orders received from particular customers
often vary substantially from early oral estimates provided by those customers for planning purposes. In addition, customer
orders can be canceled or rescheduled without significant penalty to the customer. In the past, we have experienced
customer cancellations of substantial orders for reasons beyond our control, and significant cancellations could occur again
at any time. Also, a relatively small number of distributors, OEMs and merchant power supply manufacturers account for
a significant portion of our revenues. Specifically, our top ten customers, including distributors, accounted for 62%, 54%
and 56% of our net revenues in each of the years ended December 31, 2020, 2019 and 2018, respectively. However, a
significant portion of these revenues are attributable to sales of our products through distributors of electronic components.
These distributors sell our products to a broad, diverse range of end users, including OEMs and merchant power supply
manufacturers, which mitigates the risk of customer concentration to a large degree.
Our products are sold through distributors, which limits our direct interaction with our end customers, therefore
reducing our ability to forecast sales and increasing the complexity of our business. Sales to distributors accounted for
approximately 75%, 72% and 75% of net revenues in the years ended December 31, 2020, 2019 and 2018, respectively.
Selling through distributors reduces our ability to forecast sales and increases the complexity of our business, requiring us
to:
•
•
•
manage a more complex supply chain;
monitor the level of inventory of our products at each distributor, and
monitor the financial condition and credit-worthiness of our distributors, many of which are located
outside of the United States and are not publicly traded.
Since we have limited ability to forecast inventory levels at our end customers, it is possible that there may be
significant build-up of inventories in the distributor channel, with the OEM or the OEM’s contract manufacturer. Such a
buildup could result in a slowdown in orders, requests for returns from customers, or requests to move out planned
shipments. This could adversely impact our revenues and profits. Any failure to manage these complexities could disrupt
or reduce sales of our products and unfavorably impact our financial results.
15
Our international sales activities account for a substantial portion of our net revenues, which subjects us to
substantial risks. Sales to customers outside of the United States of America account for, and have accounted for a large
portion of our net revenues, including approximately 98%, 97% and 96% of our net revenues for the year ended
December 31, 2020, 2019 and 2018. If our international sales declined and we were unable to increase domestic sales, our
revenues would decline and our operating results would be harmed. International sales involve a number of risks to us,
including:
•
•
tariffs, protectionist measures and other trade barriers and restrictions;
potential insolvency of international distributors and representatives;
•
•
•
•
reduced protection for intellectual property rights in some countries;
the impact of recessionary environments in economies outside the United States;
the burdens of complying with a variety of foreign and applicable U.S. Federal and state laws; and
foreign-currency exchange risk.
Our failure to adequately address these risks could reduce our international sales and materially and adversely
affect our operating results. Furthermore, because substantially all of our foreign sales are denominated in U.S. dollars,
increases in the value of the dollar cause the price of our products in foreign markets to rise, making our products more
expensive relative to competing products priced in local currencies.
Intense competition in the high-voltage power supply industry may lead to a decrease in our average selling price
and reduced sales volume of our products. The high-voltage power supply industry is intensely competitive and
characterized by significant price sensitivity. Our products face competition from alternative technologies, such as linear
transformers, discrete switcher power supplies, and other integrated and hybrid solutions. If the price of competing
solutions decreases significantly, the cost effectiveness of our products will be adversely affected. If power requirements
for applications in which our products are currently utilized go outside the cost-effective range of our products, some of
these alternative technologies can be used more cost effectively. In addition, as our patents expire, our competitors could
legally begin using the technology covered by the expired patents in their products, potentially increasing the performance
of their products and/or decreasing the cost of their products, which may enable our competitors to compete more
effectively. Our current patents may or may not inhibit our competitors from getting any benefit from an expired patent.
Our U.S. patents have expiration dates ranging from 2020 to 2039. We cannot assure that our products will continue to
compete favorably or that we will be successful in the face of increasing competition from new products and enhancements
introduced by existing competitors or new companies entering this market. We believe our failure to compete successfully
in the high-voltage power supply business, including our ability to introduce new products with higher average selling
prices, would materially harm our operating results.
If our products do not penetrate additional markets, our business will not grow as we expect. We believe that our
future success depends in part upon our ability to penetrate additional markets for our products. We cannot assure that we
will be able to overcome the marketing or technological challenges necessary to penetrate additional markets. To the extent
that a competitor penetrates additional markets before we do, or takes market share from us in our existing markets, our
net revenues and financial condition could be materially adversely affected.
If our efforts to enhance existing products and introduce new products are not successful, we may not be able to
generate demand for our products. Our success depends in significant part upon our ability to develop new ICs for high-
voltage power conversion for existing and new markets, to introduce these products in a timely manner and to have these
products selected for design into products of leading manufacturers. New product introduction schedules are subject to the
risks and uncertainties that typically accompany development and delivery of complex technologies to the market place,
including product development delays and defects. If we fail to develop and sell new products in a timely manner, then
our net revenues could decline.
In addition, we cannot be sure that we will be able to adjust to changing market demands as quickly and cost-
effectively as necessary to compete successfully. Furthermore, we cannot assure that we will be able to introduce new
products in a timely and cost-effective manner or in sufficient quantities to meet customer demand or that these products
will achieve market acceptance. Our failure, or our customers’ failure, to develop and introduce new products successfully
and in a timely manner would harm our business. In addition, customers may defer or return orders for existing products
16
in response to the introduction of new products. When a potential liability exists we will maintain reserves for customer
returns, however we cannot assure that these reserves will be adequate.
Because the sales cycle for our products can be lengthy, we may incur substantial expenses before we generate
significant revenues, if any. Our products are generally incorporated into a customer’s products at the design stage.
However, customer decisions to use our products, commonly referred to as design wins, can often require us to expend
significant research and development and sales and marketing resources without any assurance of success. These
significant research and development and sales and marketing resources often precede volume sales, if any, by a year or
more. The value of any design win will largely depend upon the commercial success of the customer’s product. We cannot
assure that we will continue to achieve design wins or that any design win will result in future revenues. If a customer
decides at the design stage not to incorporate our products into its product, we may not have another opportunity for a
design win with respect to that product for many months or years.
If demand for our products declines in our major end markets, our net revenues will decrease. A limited number
of applications of our products, such as cellphone chargers and consumer appliances, make up a significant percentage of
our net revenues. We expect that a significant level of our net revenues and operating results will continue to be dependent
upon these applications in the near term. The demand for these products has been highly cyclical and has been impacted
by economic downturns in the past. Any economic slowdown in the end markets that we serve could cause a slowdown in
demand for our ICs. When our customers are not successful in maintaining high levels of demand for their products, their
demand for our ICs decreases, which adversely affects our operating results. Any significant downturn in demand in these
markets would cause our net revenues to decline and could cause the price of our stock to fall.
We must attract and retain qualified personnel to be successful and competition for qualified personnel is intense
in our market. Our success depends to a significant extent upon the continued service of our executive officers and other
key management and technical personnel, and on our ability to continue to attract, retain and motivate qualified personnel,
such as experienced analog design engineers and systems applications engineers. The competition for these employees is
intense, particularly in Silicon Valley. The loss of the services of one or more of our engineers, executive officers or other
key personnel could harm our business. In addition, if one or more of these individuals leaves our employ, and we are
unable to quickly and efficiently replace those individuals with qualified personnel who can smoothly transition into their
new roles, our business may suffer. We do not have long-term employment contracts with, and we do not have in place
key person life insurance policies on, any of our employees.
Interruptions in our information technology systems could adversely affect our business. We rely on the efficient
and uninterrupted operation of complex information technology systems and networks to operate our business. Any
significant system or network disruption, including but not limited to new system implementations, computer viruses,
security breaches, or energy blackouts could have a material adverse impact on our operations, sales and operating results.
We have implemented measures to manage our risks related to such disruptions, but such disruptions could still occur and
negatively impact our operations and financial results. In addition, we may incur additional costs to remedy any damages
caused by these disruptions or security breaches.
In the event of an earthquake, terrorist act, another pandemic or other disaster, our operations may be interrupted
and our business would be harmed. Our principal executive offices and operating facilities are situated near San Francisco,
California, and most of our major suppliers, which are wafer foundries and assembly houses, are located in areas that have
been subject to severe earthquakes, such as Japan. Many of our suppliers are also susceptible to other disasters such as
tropical storms, typhoons or tsunamis. In the event of a disaster, such as the earthquake and tsunami in Japan, we or one
or more of our major suppliers may be temporarily unable to continue operations and may suffer significant property
damage. Any interruption in our ability or that of our major suppliers to continue operations could delay the development
and shipment of our products and have a substantial negative impact on our financial results.
Risks Related to Financial Performance or General Economic Conditions
Fluctuations in exchange rates, particularly the exchange rate between the U.S. dollar and the Japanese yen,
Swiss franc and euro, may impact our gross margin and net income. Our exchange rate risk related to the Japanese yen
includes two of our major suppliers, Epson and Lapis, with which we have wafer supply agreements based in U.S. dollars;
however, these agreements also allow for mutual sharing of the impact of the exchange rate fluctuation between Japanese
yen and the U.S. dollar. Each year, our management and these suppliers review and negotiate pricing; the negotiated
pricing is denominated in U.S. dollars but is subject to contractual exchange rate provisions. The fluctuation in the
exchange rate is shared equally between Power Integrations and each of these suppliers. We maintain cash denominated
17
in Swiss francs and euros to fund the operations of our Swiss subsidiary. The functional currency of our Swiss subsidiary
is the U.S. dollar; gains and losses arising from the re-measurement of non-functional currency balances are recorded in
other income in our consolidated statements of income, and material unfavorable exchange-rate fluctuations with the Swiss
franc could negatively impact our net income.
If we are unable to adequately protect or enforce our intellectual property rights, we could lose market share,
incur costly litigation expenses, suffer incremental price erosion or lose valuable assets, any of which could harm our
operations and negatively impact our profitability. Our success depends upon our ability to continue our technological
innovation and protect our intellectual property, including patents, trade secrets, copyrights and know-how. We are
currently engaged in litigation to enforce our intellectual property rights, and associated expenses have been, and are
expected to remain, material and have adversely affected our operating results. We cannot assure that the steps we have
taken to protect our intellectual property will be adequate to prevent misappropriation, or that others will not develop
competitive technologies or products. From time to time, we have received, and we may receive in the future,
communications alleging possible infringement of patents or other intellectual property rights of others. Costly litigation
may be necessary to enforce our intellectual property rights or to defend us against claimed infringement. The failure to
obtain necessary licenses and other rights, and/or litigation arising out of infringement claims could cause us to lose market
share and harm our business.
As our patents expire, we will lose intellectual property protection previously afforded by those patents.
Additionally, the laws of some foreign countries in which our technology is or may in the future be licensed may not
protect our intellectual property rights to the same extent as the laws of the United States, thus limiting the protections
applicable to our technology.
If we do not prevail in our litigation, we will have expended significant financial resources, potentially without
any benefit, and may also suffer the loss of rights to use some technologies. We are currently involved in a number of
patent litigation matters and the outcome of the litigation is uncertain. See Note 13, Legal Proceedings and Contingencies,
in our Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. For example, we are
being sued in an ongoing case for patent infringement. Should we ultimately be determined to be infringing another party’s
patents, or if an injunction is issued against us while litigation is pending on those claims, such result could have an adverse
impact on our ability to sell products found to be infringing, either directly or indirectly. In the event of an adverse outcome,
we may be required to pay substantial damages, stop our manufacture, use, sale, or importation of infringing products, or
obtain licenses to the intellectual property we are found to have infringed. We have also incurred, and expect to continue
to incur, significant legal costs in conducting these lawsuits, including the appeal of the case we won, and our involvement
in this litigation and any future intellectual property litigation could adversely affect sales and divert the efforts and
attention of our technical and management personnel, whether or not such litigation is resolved in our favor. Thus, even if
we are successful in these lawsuits, the benefits of this success may fail to outweigh the significant legal costs we will
have incurred.
Our products must meet exacting specifications, and undetected defects and failures may occur which may cause
customers to return or stop buying our products and/or impose significant costs to us. Our customers generally establish
demanding specifications for quality, performance and reliability, and our products must meet these specifications. ICs as
complex as those we sell often encounter development delays and may contain undetected defects or failures when first
introduced or after commencement of commercial shipments. We have from time to time in the past experienced product
quality, performance or reliability problems. If defects and failures occur in our products, we could experience lost revenue,
increased costs, including product warranty or liability claims and costs associated with customer support and product
recalls, delays in or cancellations or rescheduling of orders or shipments and product returns or discounts. While we
specifically exclude consequential damages in our standard terms and conditions, certain of our contracts may not exclude
such liabilities. Our liability insurance which covers certain damages arising out of product defects may not cover all
claims or be of a sufficient amount to fully protect against such claims. Costs or payments in connection with such claims
could harm our operating results.
We are exposed to risks associated with acquisitions and strategic investments. We have made, and in the future
intend to make, acquisitions of, and investments in, companies, technologies or products in existing, related or new
markets. Acquisitions involve numerous risks, including but not limited to:
•
inability to realize anticipated benefits, which may occur due to any of the reasons described below, or
for other unanticipated reasons
18
•
•
•
the risk of litigation or disputes with customers, suppliers, partners or stockholders of an acquisition
target arising from a proposed or completed transaction;
impairment of acquired intangible assets and goodwill as a result of changing business conditions,
technological advancements or worse-than-expected performance, which would adversely affect our
financial results; and
unknown, underestimated and/or undisclosed commitments, liabilities or issues not discovered in our
due diligence of such transactions.
We also in the future may have strategic relationships with other companies, which may decline in value and/or
not meet desired objectives. The success of these strategic relationships depends on various factors over which we may
have limited or no control and requires ongoing and effective cooperation with strategic partners. Moreover, these
relationships are often illiquid, such that it may be difficult or impossible for us to monetize such relationships.
Our inability to successfully integrate, or realize the expected benefits from, our acquisitions could adversely
affect our results. We have made, and in the future intend to make, acquisitions of other businesses and with these
acquisitions there is a risk that integration difficulties may cause us not to realize expected benefits. The success of the
acquisitions could depend, in part, on our ability to realize the anticipated benefits and cost savings (if any) from combining
the businesses of the acquired companies and our business, which may take longer to realize than expected.
Risks Related to Laws and Regulations
Changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or unfavorable
assessments from tax audits may increase the amount of taxes we are required to pay. Our operations are subject to income
and transaction taxes in the United States and in multiple foreign jurisdictions and to review or audit by the U.S. Internal
Revenue Service (IRS) and state, local and foreign tax authorities. In addition, the United States, countries in Asia and
other countries where we do business have recently enacted or are considering changes in relevant tax, accounting and
other laws, regulations and interpretations, including changes to tax laws applicable to multinational companies. These
potential changes could adversely affect our effective tax rates or result in other costs to us.
Recently enacted U.S. tax legislation has significantly changed the taxation of U.S.-based multinational
corporations, by, among other things, reducing the U.S. corporate income tax rate, adopting elements of a territorial tax
system, assessing a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred,
and the creation of new taxes on certain foreign-sourced earnings. The legislation as initially enacted was unclear in some
respects and has required interpretations and implementing regulations by the Internal Revenue Service, as well as state
tax authorities, and the legislation has been subject to amendments and technical corrections. Further amendments and
technical corrections may occur, any of which could lessen or increase certain adverse impacts of the legislation. A
significant portion of our earnings are earned by our subsidiaries outside the U.S. Changes to the taxation of certain foreign
earnings resulting from the newly enacted U.S. tax legislation, along with the state tax impact of these changes and
potential future cash distributions, may have an adverse effect on our effective tax rate. Furthermore, changes to the
taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. The
foregoing items could have a material effect on our business, cash flow, results of operations or financial conditions.
Changes in environmental laws and regulations may increase our costs related to obsolete products in our
existing inventory. Changing environmental regulations and the timetable to implement them continue to impact our
customers’ demand for our products. As a result, there could be an increase in our inventory obsolescence costs for
products manufactured prior to our customers’ adoption of new regulations. Currently we have limited visibility into our
customers’ strategies to implement these changing environmental regulations into their business. The inability to
accurately determine our customers’ strategies could increase our inventory costs related to obsolescence.
General Risk Factors
Securities laws and regulations, including potential risk resulting from our evaluation of internal controls over
financial reporting, will continue to impact our results. Complying with the requirements of the federal securities laws
and Nasdaq’s conditions for continued listing have imposed significant legal and financial compliance costs, and are
expected to continue to impose significant costs and management burden on us. These rules and regulations also may make
it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced
coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more
19
difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly qualified
members to serve on our audit committee. Further, the rules and regulations under the Dodd-Frank Wall Street Reform
and Consumer Protection Act, which became effective in 2011, may impose significant costs and management burden on
us.
Additionally, because these laws, regulations and standards are expected to be subject to varying interpretations,
their application in practice may evolve over time as new guidance becomes available. This evolution may result in
continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our
disclosure and governance practices.
Uncertainties arising out of economic consequences of current and potential military actions or terrorist
activities and associated political instability could adversely affect our business. Like other U.S. companies, our business
and operating results are subject to uncertainties arising out of economic consequences of current and potential military
actions or terrorist activities and associated political instability, and the impact of heightened security concerns on domestic
and international travel and commerce. These uncertainties could also lead to delays or cancellations of customer orders,
a general decrease in corporate spending or our inability to effectively market and sell our products. Any of these results
could substantially harm our business and results of operations, causing a decrease in our revenues.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
We own our principal executive, administrative, manufacturing and technical offices which are located in San
Jose, California. We also own an R&D facility in New Jersey, a design center in Germany and a test facility in Switzerland.
We lease administrative office space in Singapore and Switzerland, R&D facilities in Canada, United Kingdom and
Malaysia, in addition to sales offices in various countries around the world to accommodate our sales force. We believe
that our current facilities are sufficient for our company; however, if headcount increases above capacity we may need to
lease additional space.
Item 3. Legal Proceedings.
Information with respect to this item may be found in Note 13, Legal Proceedings and Contingencies, in our
Notes to Consolidated Financial Statements included later in this Annual Report on Form 10-K, which information is
incorporated here by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock trades on the Nasdaq Global Select Market under the symbol “POWI”.
As of February 2, 2021, there were approximately 43 stockholders of record. Because brokers and other
institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.
Issuer Purchases of Equity Securities
Over the years our board of directors has authorized the use of funds to repurchase shares of our common stock,
including $80.0 million in October 2018, with repurchases to be executed according to pre-defined price/volume
guidelines. We did not repurchase any shares of our common stock in the fourth quarter of 2020. As of December 31,
2020, we had $41.3 million available for future stock repurchases in our repurchase program, which has no expiration
date. Authorization of future stock-repurchase programs is at the discretion of the board of directors and will depend on
our financial condition, results of operations, capital requirements and business conditions as well as other factors.
20
Performance Graph (1)
The following graph shows the cumulative total return on an investment of $100 in cash on December 31, 2015,
through December 31, 2020, in our common stock, the Nasdaq Composite Index and the Nasdaq Electronic Components
Index and assuming that all dividends were reinvested. The stockholder return shown on the graph below is not necessarily
indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Power Integrations, Inc., the NASDAQ Composite Index
and the NASDAQ Electronic Components Index
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/15
12/16
12/17
12/18
12/19
12/20
Power Integrations, Inc.
NASDAQ Composite
NASDAQ Electronic Components
*$100 invested on 12/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Company/Index
Power Integrations, Inc. . . . . . . . . . . . . . . . . . . . .
Nasdaq Composite. . . . . . . . . . . . . . . . . . . . . . . . .
Nasdaq Electronic Components . . . . . . . . . . . . . .
12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20
351.57
271.64
252.83
153.94
141.13
146.21
140.87
108.87
121.48
128.81
137.12
119.92
210.80
187.44
178.71
100.00
100.00
100.00
(1) This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference
in any filing of Power Integrations under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such
filing.
21
Item 6. Selected Financial Data.
The following selected consolidated financial data should be read in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations’’ and the consolidated financial statements and the notes
thereto included elsewhere in this Annual Report on Form 10-K to fully understand factors that may affect the
comparability of the information presented below.
Consolidated Statement of Income Data
(in thousands, except per share amounts)
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 488,318 $ 420,669 $ 415,955 $ 431,755 $ 389,668
57,637 48,874
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . .
1,054
32,690
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,176 $ 193,468 $ 69,984 $ 27,609 $ 48,898
55,648
28,946 (10,220)
70,487 217,022
4,075
Year Ended December 31,
2018
2017(3)(4)
2016(3)
2019(2)
2020
Earnings per share: (1)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.19 $
1.17 $
3.31 $
3.25 $
1.19 $
1.16 $
0.47 $
0.45 $
0.85
0.83
Shares used in per share calculation: (1)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per share (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
59,657
60,845
0.42 $
58,534
59,632
0.35 $
58,912
60,294
0.32 $
59,348 57,850
61,090 59,238
0.26
0.28 $
Consolidated Balance Sheet Data
(in thousands)
62,134
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 258,874 $ 178,690 $ 134,137 $
188,323
Short-term marketable securities . . . . . . . . . . . . . . . . . . . . . . . .
250,457
Cash, cash equivalents and short-term marketable securities .
274,318
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
554,410
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,380
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 810,411 $ 724,546 $ 527,072 $ 547,682 $ 503,084
190,318
449,192
538,706
903,339
30,402
232,398
411,088
490,863
803,896
28,874
189,236
282,891
313,483
621,074
22,341
94,451
228,588
284,066
588,697
13,259
2017(3)(4) 2016(3)
93,655 $
Year Ended December 31,
2018
2019(2)
2020
(1) In July 2020, our board of directors approved a two-for-one stock split in the form of a stock dividend, payable
on August 18, 2020, to stockholders of record as of the close of business on August 14, 2020. Our stockholders
received one additional share of common stock for each share of common stock held on August 14, 2020. The share
and per share information for all periods presented in this Form 10-K have been adjusted for the effect of the stock
split (Refer to Note 10, Earnings Per Share, in this Form 10-K for details).
(2) In October 2019, we entered into a favorable litigation settlement with ON Semiconductor Corporation which resulted
in a $169.0 million net gain.
(3) In 2017, we adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers, which amended
the accounting standards for revenue recognition. The standards were applied on a retrospective basis to 2016.
(4) In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act.
22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of our operations should be read in
conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this Annual
Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. See
“Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Form 10-K. Our actual results could
differ materially from those contained in these forward-looking statements due to a number of factors, including those
discussed in Part I, Item 1A “Risk Factors” and elsewhere in this report.
Business Overview
We design, develop and market analog and mixed-signal integrated circuits (ICs) and other electronic components
and circuitry used in high-voltage power conversion. Our products are used in power converters that convert electricity
from a high-voltage source to the type of power required for a specified downstream use. In most cases, this conversion
entails, among other functions, converting alternating current (AC) to direct current (DC) or vice versa, reducing or
increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.
A large percentage of our products are ICs used in AC-DC power supplies, which convert the high-voltage AC
from a wall outlet to the low-voltage DC required by most electronic devices. Power supplies incorporating our products
are used with all manner of electronic products including mobile phones, computing and networking equipment,
appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of
things” applications such as networked thermostats, power strips and security devices. We also supply high-voltage LED
drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-
driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-
appliance and light commercial applications.
We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical
isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors
(IGBTs) and silicon-carbide (SiC) MOSFETs. These combinations of switches and drivers are used for power conversion
in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors,
solar- and wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.
Our net revenues were $488.3 million, $420.7 million and $416.0 million in 2020, 2019 and 2018, respectively.
In 2020, revenues increased by $67.6 million due to growth across all end markets reflecting increased adoption of higher-
power chargers for mobile phones and tablets, increased sales for desktop computers and monitors, as well as a broad
range of industrial and consumer-appliance applications. In 2019, revenues increased by $4.7 million due to growth in
sales into the communications end-market, reflecting increased adoption of faster, higher-power chargers for mobile
phones; this trend has resulted in both unit growth and higher average selling prices for our products in this market. Growth
in revenues from the communications end-market was largely offset by lower sales into the consumer and industrial
markets, primarily reflecting macroeconomic, cyclical and trade-related factors that have affected the broader
semiconductor industry.
Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers,
accounted for approximately 62%, 54% and 56% of net revenues in 2020, 2019 and 2018, respectively. In 2020, two
customers, distributors of our products, accounted for approximately 19% and 11% of net revenues. In 2019 and 2018,
one of these customers accounted for approximately 11% and 14% of net revenues. International sales represented
approximately 98%, 97% and 96% of net revenues in 2020, 2019 and 2018, respectively.
Because our industry is intensely price-sensitive, our gross margin (gross profit divided by net revenues) is subject
to change based on the relative pricing of solutions that compete with ours. Variations in product mix, end-market mix
and customer mix can also cause our gross margin to fluctuate. Also, because we purchase a large percentage of our silicon
wafers from foundries located in Japan, our gross margin is influenced by fluctuations in the exchange rate between the
U.S. dollar and the Japanese yen. All else being equal, a 10% change in the value of the U.S. dollar compared to the
Japanese yen would eventually result in a corresponding change in our gross margin of approximately 1.0%; this sensitivity
may increase or decrease depending on the percentage of our wafer supply that we purchase from Japanese suppliers. Also,
although our wafer fabrication and assembly operations are outsourced, as are most of our test operations, a portion of our
production costs are fixed in nature. As a result, our unit costs and gross profit margin are impacted by the volume of units
we produce.
23
Our gross profit, defined as net revenues less cost of revenues, was $243.6 million or 50% of net revenues in
2020, compared to $213.4 million or 51% of net revenues in 2019, and $214.8 million or 52% of net revenues in 2018.
Our gross margin decreased in 2020 due primarily to an unfavorable change in end-market mix with a greater amount of
revenues coming from lower-margin end markets. Our gross margin decreased in 2019 primarily due to increased wafer
substrate costs.
Total operating expenses in 2020 were $173.1 million, compared to a net gain of $3.6 million in 2019 stemming
from the $169.0 million gain on settlement of our litigation with ON Semiconductor. In 2018, total operating expenses
were $159.1 million. Apart from the effects of the 2019 legal settlement, the increase in operating expenses in 2020 was
due primarily to higher stock-based compensation expense related mainly to performance-based awards, along with higher
salary and related expenses from annual merit increases and the expansion of our workforce. These increases were partially
offset by lower legal expenses following the conclusion of our litigation with ON Semiconductor as well as lower travel
expenses, trade event and promotional activities due to COVID-19 pandemic-related restrictions.
COVID-19 Pandemic
The COVID-19 pandemic has disrupted everyday life and markets worldwide, and governments around the world
have imposed restrictions aimed at controlling the spread of the virus, including shelter-in-place orders, travel restrictions,
business shutdowns and border closures. Beginning March 16, 2020 our San Jose headquarters location was subject to a
shelter-in-place order, under which most of our employees were required to work from home; other locations around the
world have also been subject to such restrictions. We will begin a phased reopening of our San Jose headquarters when
these restrictions are lifted. Some of our employees in other locations around the world have returned to the office under
a phased reopening plan. We have implemented a variety of measures to protect the health and safety of our employees,
including the provision of masks, gloves and sanitizers, social-distancing rules, and regular deep cleaning of our facilities.
While we have been able to conduct our day-to-day operations effectively in spite of the restrictions caused by
the pandemic, the pandemic has caused disruptions in our supply chain. While the supply of wafers from our foundry
partners has not been interrupted, government-mandated closures in China, Malaysia, Sri Lanka and the Philippines in the
early stages of the pandemic caused temporary shutdowns at our assembly and test sub-contractors in those countries. All
of the affected sub-contractors have now resumed operations. While these disruptions resulted in delayed shipments to
some customers, our results were not materially affected due to a variety of mitigation measures including higher-than-
normal inventories of wafers and finished goods, safety stocks of certain key inputs, and multiple sources for components
for most of our products.
Despite the economic downturn stemming from the pandemic, demand for goods incorporating our products is
strong. While the future trajectory of demand is highly uncertain, we believe our business is fundamentally sound with
strong, long-term growth prospects. We have not reduced headcount and intend to continue investing in research and
development and other functions necessary to support our future growth. We also intend to continue our cash dividend
and stock repurchase programs; however, if the economy deteriorates more than we expect or our business outlook
changes, our board of directors may choose to suspend or alter these programs at its discretion. For additional discussion
regarding COVID-19 business risks refer to Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally
accepted in the United States of America, or U.S. GAAP, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis,
we evaluate our estimates, including those listed below. We base our estimates on historical facts and various other
assumptions that we believe to be reasonable at the time the estimates are made. Actual results could differ from those
estimates.
Our critical accounting policies are as follows:
•
•
revenue recognition; and
income taxes.
24
Our critical accounting policies are important to the portrayal of our financial condition and results of operations,
and require us to make judgments and estimates about matters that are inherently uncertain. A brief description of these
critical accounting policies is set forth below. For more information regarding our accounting policies, see Note 2,
Summary of Significant Accounting Policies and Recent Accounting Pronouncements, in our Notes to Consolidated
Financial Statements in this Annual Report on Form 10-K.
Revenue recognition
Product revenues consist of sales to original equipment manufacturers, or OEMs, merchant power supply
manufacturers and distributors. Approximately 75% of our net product sales were made to distributors in 2020. We apply
the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers, and all
related appropriate guidance. We recognize revenue under the core principle to depict the transfer of control to our
customers in an amount reflecting the consideration we expect to be entitled. In order to achieve that core principle, we
apply the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations
in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the
contract, and (5) recognize revenue when a performance obligation is satisfied.
Product revenues consist of sales to original equipment manufacturers, or OEMs, merchant power supply
manufacturers and distributors. We consider customer purchase orders, which in some cases are governed by master sales
agreements, to be the contracts with a customer. In situations where sales are to a distributor, we have concluded that our
contracts are with the distributor as we hold contracts bearing enforceable rights and obligations with only the distributor.
As part of our consideration of the contract, we evaluate certain factors including the customer’s ability to pay (or credit
risk). For each contract, we consider the promise to transfer products, each of which is distinct, to be the identified
performance obligations. In determining the transaction price we evaluate whether the price is subject to refund or
adjustment to determine the net consideration to which we expect to be entitled. As our standard payment terms are less
than one year, we elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant
financing component. We allocate the transaction price to each distinct product based on their relative standalone selling
price. We consider the product price as specified on the purchase order the standalone selling price as it is an observable
input which depicts the price as if sold to a similar customer in similar circumstances. We recognize revenue when control
of the product is transferred to the customer (i.e., when our performance obligation is satisfied), which typically occurs at
shipment. Further, in determining whether control has transferred, we consider if there is a present right to payment and
legal title, along with risks and rewards of ownership having transferred to the customer.
Frequently, we receive orders for products to be delivered over multiple dates that may extend across several
reporting periods. We invoice for each delivery upon shipment and recognize revenue for each distinct product delivered,
assuming transfer of control has occurred. As scheduled delivery dates are within one year, under the optional exemption
provided by ASC 606-10-50-14 revenues allocated to future shipments of partially completed contracts are not disclosed.
We have also elected the practical expedient under ASC 340-40-25-4 to expense commissions when incurred as the
amortization period of the commission asset we would have otherwise recognized is less than one year.
Sales to international customers that are shipped from our facility outside of the United States are pursuant to EX
Works, or EXW, shipping terms, meaning that control of the product transfers to the customer upon shipment from our
foreign warehouse. Sales to international customers that we ship from our facility in California are pursuant to Delivered
at Frontier, or DAF, shipping terms. As such, control of the product passes to the customer when the shipment reaches the
destination country and we recognize revenue upon the arrival of the product in that country. Shipments to customers in
the Americas are pursuant to Free on Board, or FOB, point of origin shipping terms meaning that we pass control to the
customer upon shipment.
Sales to most distributors are made under terms allowing certain price adjustments and limited rights of return
(known as “stock rotation”) of our products held in their inventory or upon sale to their end customers. We recognize
revenue from sales to distributors upon the transfer of control to the distributor. Frequently, distributors need to sell at a
price lower than the standard distribution price in order to win business. At the time the distributor invoices its customer
or soon thereafter, the distributor submits a “ship and debit” price adjustment claim to us to adjust the distributor’s cost
from the standard price to the pre-approved lower price. After we verify that the claim was pre-approved, we issue a credit
memo to the distributor for the ship and debit claim. In determining the transaction price, we consider ship and debit price
adjustments to be variable consideration. Such price adjustments are estimated using the expected value method based on
an analysis of actual ship and debit claims, at the distributor and product level, over a period of time considered adequate
25
to account for current pricing and business trends. Historically, actual price adjustments for ship and debit claims relative
to those estimated and included when determining the transaction price have not materially differed. To the extent future
ship and debit claims significantly exceed amounts estimated, there could be a material impact on our revenues and results
of operations. Stock rotation rights grant the distributor the ability to return certain specified amounts of inventory. Stock
rotation adjustments are an additional form of variable consideration and are also estimated using the expected value
method based on historical return rates. Historically, these distributor stock rotation adjustments have not been material.
Sales to certain distributors are made under terms that do not include rights of return or price concessions after
the product is shipped to the distributor. Accordingly, upon application of steps one through five above, product revenue
is recognized upon shipment and transfer of control.
We generally provide an assurance warranty that our products will substantially conform to the published
specifications for twelve months from the date of shipment. Our liability is limited to either a credit equal to the purchase
price or replacement of the defective part. Returns under warranty have historically been immaterial. As such, we do not
record a specific warranty reserve or consider activities related to such warranty, if any, to be a separate performance
obligation.
Income taxes
We account for income taxes under the provisions of ASC 740, Income Taxes. Under the provisions of ASC 740,
deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. We recognize valuation
allowances to reduce any deferred tax assets to the amount that we estimate will more likely than not be realized based on
available evidence and management’s judgment. In the event that we determine, based on available evidence and
management judgment, that all or part of the net deferred tax assets will not be realized in the future, we would record a
valuation allowance in the period the determination is made. In addition, the calculation of tax liabilities involves
significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these
uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and
financial position.
As of December 31, 2020, we continue to maintain a valuation allowance on our California, New Jersey and
Canada deferred tax assets as we believe that it is not more likely than not that the deferred tax assets will be fully realized.
Results of Operations
The following table sets forth statement of income data as a percentage of net revenues for the periods indicated:
Year Ended December 31,
2019
2020
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0 %
50.1
49.9
100.0 %
49.3
50.7
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.7
11.2
7.6
—
35.4
14.4
1.0
15.4
0.8
14.6 %
17.5
12.9
8.9
(40.2)
(0.9)
51.6
1.3
52.9
6.9
46.0 %
2018
100.0 %
48.4
51.6
17.0
12.8
8.4
—
38.2
13.4
1.0
14.4
(2.4)
16.8 %
26
Comparison of Years Ended December 31, 2020, 2019 and 2018
Net revenues. Net revenues consist of revenues from product sales, which are calculated net of returns and
allowances. In 2020 revenues increased by $67.6 million compared to 2019 due to growth across all end markets reflecting
increased adoption of higher-power chargers for mobile phones and tablets, increased sales for desktop computers and
monitors, as well as a broad range of consumer appliance and industrial applications. In 2019 revenues increased by $4.7
million compared to 2018 as growth in the communications end-market more than offset a broad-based decline in demand
across the consumer and industrial end markets.
Our approximate net revenue mix by end-markets served in 2020, 2019 and 2018 is as follows:
End Market
Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
2019
2018
30 %
7 %
33 %
30 %
26 %
5 %
35 %
34 %
20 %
5 %
38 %
37 %
Sales to customers outside of the United States were $477.3 million in 2020, compared to $410.0 million in 2019
and $400.6 million in 2018, representing approximately 98%, 97% and 96% of net revenues in 2020, 2019 and 2018,
respectively. Although power supplies using our products are designed and distributed worldwide, most of these power
supplies are manufactured by our customers in Asia. As a result, sales to this region accounted for approximately 81% of
our net revenues in 2020, and 77% of our net revenues in each of 2019 and 2018. We expect international sales to continue
to account for a large portion of our net revenues for the foreseeable future.
Sales to distributors accounted for 75%, 72% and 75% of our net revenues in 2020, 2019 and 2018, respectively,
with direct sales to OEMs and merchant power supply manufacturers accounting for the remainder in each of the
corresponding years.
The following customers represented 10% or more of our net revenues for the respective years:
Customer
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Honestar Technologies Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
________________________
*Total customer revenue was less than 10% of net revenues.
No other customers accounted for 10% or more of net revenues during these years.
2020
19 %
11 %
2019
2018
11 %
*
14 %
*
Gross profit. Gross profit is net revenues less cost of revenues. Our cost of revenues consists primarily of the purchase of
wafers from our contracted foundries, the assembly, packaging and testing of our products by sub-contractors, product
testing performed in our own facility, overhead associated with the management of our supply chain and the amortization
of acquired intangible assets. Gross margin is gross profit divided by net revenues. The following table compares gross
profit and gross margin for the years ended December 31, 2020, 2019 and 2018:
(dollars in millions)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 243.6
49.9 %
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
51.6 %
Our gross margin decreased in 2020 as compared to 2019 primarily due to an unfavorable change in end-market
mix with a greater amount of revenues coming from lower-margin end markets. Our gross margin decreased in 2019 as
compared to 2018 primarily due to increased wafer substrate costs.
50.7 %
Change
14.1 % $
2019
213.4
Change
(0.7)% $
2018
214.8
Research and development expenses. Research and development (R&D) expenses consist primarily of employee-
related expenses including salaries and stock-based compensation, as well as expensed material and facility costs
associated with the development of new processes and products. We also record R&D expenses for prototype wafers
related to new products until the products are released to production. The following table compares R&D expenses for
the years ended December 31, 2020, 2019 and 2018:
(dollars in millions)
R&D expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Percentage of net revenues . . . . . . . . . . . . . . . . .
2020
81.7
16.7 %
Change
11.2 % $
2019
73.5
17.5 %
Change
4.1 % $
2018
70.6
17.0 %
27
R&D expenses increased in 2020 compared to 2019 due to higher salary and related expenses driven by expansion
of headcount and annual merit increases, increased equipment-related expenses in support of product development as well
as higher stock-based compensation expense primarily related to performance-based awards. R&D expenses increased
in 2019 compared to 2018 due to higher salary and related expenses driven by increased headcount as well as increased
equipment-related expenses.
Sales and marketing expenses. Sales and marketing (S&M) expenses consist primarily of employee-related
expenses, including salaries and stock-based compensation, and commissions to sales representatives, as well as
amortization of acquired intangible assets and facilities expenses, including expenses associated with our regional sales
and support offices. The following table compares sales and marketing expenses for the years ended December 31, 2020,
2019 and 2018:
(dollars in millions)
Sales and marketing expenses . . . . . . . . . . . . . . $
Percentage of net revenues . . . . . . . . . . . . . . . . .
2020
54.5
11.2 %
Change
0.4 % $
2019
54.3
12.9 %
Change
2.3 % $
2018
53.1
12.8 %
S&M expenses increased in 2020 compared to 2019 due to higher salary and related expenses from the expansion
of headcount and higher stock-based compensation expense primarily related to performance-based awards. These factors
were partially offset by lower travel expenses, trade event and promotional activities resulting from restrictions associated
with the COVID-19 pandemic, as well as lower amortization of intangibles. S&M expenses increased in 2019 as compared
to 2018 due primarily to expansion of our sales force, resulting in higher salary and related expenses, partially offset by
lower amortization of intangibles.
General and administrative expenses. General and administrative (G&A) expenses consist primarily of
employee-related expenses, including salaries and stock-based compensation expenses for administration, finance, human
resources and general management, as well as consulting, professional services, legal and auditing expenses. The table
below compares G&A expenses for the years ended December 31, 2020, 2019 and 2018:
(dollars in millions)
G&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Percentage of net revenues . . . . . . . . . . . . . . . . .
2020
36.9
7.6 %
Change
(1.9)% $
2019
37.6
8.9 %
Change
5.9 % $
2018
35.5
8.4 %
G&A expenses decreased in 2020 due to lower patent-litigation expenses partially offset by higher stock-based
compensation expense primarily related to performance-based awards. G&A expenses increased in 2019 as a result of
increased expenses related to patent litigation and higher salary and related expenses due to expansion of headcount.
Litigation settlement. Litigation settlement in fiscal 2019 represents a $169.0 million gain net of direct legal fees
due to a favorable legal settlement with ON Semiconductor Corporation, pursuant to which all outstanding legal and
administrative disputes were dismissed, withdrawn, and/or terminated.
Other income. Other income consists primarily of interest income earned on cash and cash equivalents,
marketable securities and other investments, and the impact of foreign exchange gains or losses. The following table
compares other income for the years ended December 31, 2020, 2019 and 2018:
(dollars in millions)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Percentage of net revenues . . . . . . . . . . . . . . . . .
2020
4.8
1.0 %
Change
(11.8)% $
2019
5.4
1.3 %
Change
32.0 % $
2018
4.1
1.0 %
Other income decreased in 2020 due primarily to lower interest income, reflecting lower yields earned on our
cash and investments despite higher cash and investment balances. Other income increased in 2019 due primarily to an
increase in interest income reflecting an increase in our cash and investments along with higher yields earned on those
balances.
28
Provision (benefit) for income taxes. Provision (benefit) for income taxes represents federal, state and foreign
taxes. The following table compares the provision (benefit) for income taxes for the years ended December 31, 2020, 2019
and 2018:
(dollars in millions)
Provision (benefit) for income taxes . . . . . . . . . $
Percentage of net revenues . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . .
2020
4.1
0.8 %
5.4 %
Change
(85.9)% $
2019
28.9
6.9 %
13.0 %
Change
383.2 % $ (10.2)
2018
(2.4)%
(17.1)%
In 2020, 2019 and 2018, the effective tax rate was lower than the statutory U.S. federal income-tax rates of 21%
due to the geographic distribution of our world-wide earnings in lower tax jurisdictions, the impact of federal research tax
credits and the recognition of excess tax benefits related to share-based compensation. These benefits were partially offset
by U.S. tax on foreign income, known as global intangible low-taxed income. Additionally, in 2018 the effective tax rate
was favorably impacted by revisions to our provisional estimate for the enactment of the U.S. Tax Cuts and Jobs Act (Tax
Act). The primary jurisdiction from which our foreign earnings are derived is the Cayman Islands, which is a non-taxing
jurisdiction. Income earned in other foreign jurisdictions was not material. We have not been granted any incentivized tax
rates and do not operate under any tax holidays in any jurisdiction. For additional details, refer to Note 11, Provision
(Benefit) for Income Taxes, in our Notes to Consolidated Financial Statements included in this Annual Report on
Form 10-K.
Liquidity and Capital Resources
We had approximately $449.2 million in cash, cash equivalents and short-term marketable securities at
December 31, 2020 compared to $411.1 million at December 31, 2019, and $228.6 million at December 31, 2018. As of
December 31, 2020, 2019 and 2018, we had working capital, defined as current assets less current liabilities, of
approximately $538.7 million, $490.9 million and $284.1 million, respectively.
We have a credit agreement with a bank (the "Credit Agreement") that provides us with a $75.0 million revolving
line of credit to use for general corporate purposes with a $20.0 million sub-limit for the issuance of standby and trade
letters of credit. Our ability to borrow under the revolving line of credit is conditioned upon our compliance with specified
covenants, including reporting and financial covenants, primarily a minimum liquidity measure and a debt to earnings
ratio, with which we are currently in compliance. The Credit Agreement terminates on April 30, 2022; all advances under
the revolving line of credit will become due on such date, or earlier in the event of a default. As of December 31, 2020,
and 2019, we had no advances outstanding under the Credit Agreement.
Our operating activities generated cash of $125.6 million, $224.5 million, and $84.0 million in the years ended
December 31, 2020, 2019 and 2018, respectively. We generate cash primarily from operating activities in the ordinary
course of business. In addition, in 2019 our cash generated from operating activities was favorably impacted by the
settlement of our patent litigation with ON Semiconductor Corporation.
Cash Provided by Operating Activities
In 2020, our net income was $71.2 million, which reflected non-cash charges of $30.9 million of stock-based
compensation expenses, $23.7 million of depreciation and $4.4 million of intangibles amortization. Sources of cash also
included a $9.1 million decrease in prepaid expenses and other assets, primarily driven by taxes refunded, a $5.7 million
increase in accounts payable (excluding payables related to property and equipment) and a $4.1 million increase in taxes
payable and accrued liabilities, in each case due to the timing of payments. These sources of cash were partially offset by
an $11.3 million increase in accounts receivable due to increased shipments and the timing of collections, a $12.5 million
increase in inventories, reflecting impact of a market slowdown during the first half of the year and higher inventory levels
to support anticipated future demand.
In 2019, our net income was $193.5 million, which included a $169.0 million gain, net of direct legal fees, from
a favorable litigation settlement, $23.3 million of stock-based compensation expenses, $19.2 million of depreciation and
$5.2 million of intangibles amortization. Sources of cash also included a $10.6 million increase in taxes payable and
accrued liabilities due primarily to increased taxes payable as result of favorable litigation settlement. These sources of
cash were partially offset by a $13.3 million increase in accounts receivable due to increased shipments and the timing of
collections, a $9.5 million increase in inventories in anticipation of future demand, and a $6.6 million decrease in accounts
payable due to the timing of payments.
29
In 2018, our net income was $70.0 million, which included stock-based compensation expenses, depreciation and
intangibles amortization of $21.6 million, $18.9 million, and $5.3 million, respectively. Sources of cash also included
a $5.8 million decrease in accounts receivable due to decreased shipments and the timing of collections. These sources of
cash were partially offset by a $23.8 million increase in inventories, partially reflecting lower-than-normal inventory levels
at the beginning of the year, but also driven by lower-than-expected sales, particularly in the latter half of the year, and
a $9.9 million decrease in taxes payable and accrued liabilities due primarily to a decrease in taxes payable related to the
enactment of the Tax Act.
Cash Provided by (Used in) Investing Activities
Our investing activities in the year ended December 31, 2020 resulted in a $28.3 million net use of cash,
consisting primarily of $41.7 million from purchases of marketable securities, net of sales and maturities, and $70.6 million
for purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our products
and a building for our design center in Germany.
Our investing activities in the year ended December 31, 2019 resulted in a $162.0 million net use of cash,
consisting primarily of $136.9 million from purchases of marketable securities, net of sales and maturities, and $24.1
million for purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our
products.
Our investing activities provided $69.1 million of cash in the year ended December 31, 2018, consisting primarily
of $94.7 million from sales and maturities of marketable securities, net of purchases, partially offset by $24.7 million for
purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our products.
Cash Used in Financing Activities
Our financing activities in the year ended December 31, 2020, resulted in a net use of $17.2 million of cash.
Financing activities consisted primarily of $25.1 million for the payment of dividends to stockholders and $2.6 million for
the repurchase of our common stock, partially offset by proceeds of $10.5 million from the issuance of common stock,
including the exercise of employee stock options and the issuance of shares through our employee stock purchase plan.
Our financing activities in the year ended December 31, 2019, resulted in a net use of $17.9 million of cash.
Financing activities consisted primarily of $20.5 million for the payment of dividends to stockholders and $7.3 million for
the repurchase of our common stock, partially offset by proceeds of $9.9 million from the issuance of common stock,
including the exercise of employee stock options and the issuance of shares through our employee stock purchase plan.
Our financing activities in the year ended December 31, 2018, resulted in a net use of $112.6 million of cash.
Financing activities consisted primarily of $103.2 million for the repurchase of our common stock and $18.8 million for
the payment of dividends to stockholders, partially offset by proceeds of $9.4 million from the issuance of common stock,
including the exercise of employee stock options and the issuance of shares through our employee stock purchase plan.
Dividends
In January 2018, our board of directors declared four quarterly cash dividends in the amount of $0.08 per share
to be paid to stockholders of record at the end of each quarter in 2018. In January 2019, our board of directors
declared four quarterly cash dividends of $0.085 per share to be paid to stockholders of record at the end of each quarter
in 2019. In October 2019, our board of directors raised the cash dividends per share with the declaration of five cash
dividends, consisting of (a) a dividend of $0.01 per share to be paid to stockholders of record at the end of the fourth
quarter in 2019, that was in addition to the dividend of $0.085 per share to be paid to stockholders of record at the end of
the fourth quarter in 2019 previously declared by the board in January 2019, and (b) a dividend of $0.095 per share to be
paid to stockholders of record at the end of each quarter in 2020. In April 2020, our board of directors raised the cash
dividends with the declaration of three cash dividends of $0.105 per share (in lieu of the $0.095 per share previously
announced in October 2019) to be paid to stockholders of record at the end of each of the second, third and fourth quarter
in 2020. In July 2020, our board of directors raised the cash dividends further with the declaration of two cash dividends
of $0.11 per share (in lieu of the $0.105 per share announced in April 2020) to be paid to stockholders of record at the end
of each of the third and fourth quarter in 2020. In January 2021, our board of directors raised the quarterly cash dividend
by an additional $0.02 per share with the declaration of four cash dividends of $0.13 per share to be paid to stockholders
of record at the end of each quarter in 2021. The declaration of any future cash dividend is at the discretion of the board
of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and
30
other factors, as well as a determination that cash dividends are in the best interest of our stockholders. The dividends per
share presented above reflect the 2-for-1 stock split implemented as a stock dividend in August 2020.
Stock Repurchases
Over the years our board of directors has authorized the use of funds to repurchase shares of our common stock,
including $80.0 million in October 2018 with repurchases to be executed according to pre-defined price/volume guidelines.
In 2018, we purchased 3,144,000 shares for approximately $103.2 million. In 2019, we purchased 242,000 shares for
approximately $7.3 million. In 2020, we purchased 63,000 shares for approximately $2.6 million. As of December 31,
2020, $41.3 million was available for future stock repurchases, which has no expiration date. Authorization of future stock
repurchase programs is at the discretion of the board of directors and will depend on our financial condition, results of
operations, capital requirements and business conditions as well as other factors.
As of December 31, 2020, we had a contractual obligation related to income tax, consisting primarily of
unrecognized tax benefits of approximately $21.1 million. The tax obligation was classified as long-term income taxes
payable or recorded as contra deferred tax assets in our consolidated balance sheet.
Other Information
Our cash, cash equivalents and investment balances may change in future periods due to changes in our planned
cash outlays, including changes in incremental costs such as direct and integration costs related to future acquisitions. The
Tax Act signed into law on December 22, 2017 subjects U.S. companies to a one-time transition tax on total post-1986
earnings and profits of their foreign subsidiaries and generally allows companies to repatriate accumulated foreign earnings
without incurring additional U.S. federal taxes beginning after December 31, 2017. Accordingly, as of December 31, 2020,
our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal
investments, acquisitions, stock repurchases and/or dividends without incurring significant U.S. federal income taxes.
If our operating results deteriorate in future periods, either as a result of a decrease in customer demand or pricing
pressures from our customers or our competitors, or for other reasons, our ability to generate positive cash flow from
operations may be jeopardized. In that case, we may be forced to use our cash, cash equivalents and short-term investments,
use our current financing or seek additional financing from third parties to fund our operations. We believe that cash
generated from operations, together with existing sources of liquidity, will satisfy our projected working capital and other
cash requirements for at least the next 12 months.
Off-Balance-Sheet Arrangements
As of December 31, 2020 and 2019, we did not have any off-balance-sheet arrangements or relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose
entities, which are typically established for the purpose of facilitating off-balance-sheet arrangements or other contractually
narrow or limited purposes.
Contractual Obligations
As of December 31, 2020, we had the following contractual obligations:
Payments Due by Period
Less than 1
(in thousands)
Operating lease obligations(1) . . . . . . . . . . . . . . . . . . $
Purchase obligations(2) . . . . . . . . . . . . . . . . . . . . . . . $
________________________
(1) Operating lease obligations represent undiscounted non-cancelable remaining lease payments.
(2) Purchase obligations represent commitments to our suppliers and other parties for the purchases of goods and services,
which primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, and
purchases of property and equipment.
1 - 3 Years 4 - 5 Years Over 5 Years
—
—
Year
2,909 $
60,084
Total
8,220 $
60,084 $
4,478 $
—
833
—
In addition to our contractual obligations noted above we have a contractual obligation related to income tax as
of December 31, 2020, which primarily comprises unrecognized tax benefits of approximately $21.1 million, and was
classified as contra deferred tax assets or long-term income taxes payable in our consolidated balance sheet. As of
31
December 31, 2020 we also had approximately $4.5 million classified as long-term income taxes payable related to the
estimated one-time transition tax from the enactment of the Tax Act which will be payable in five annual installments.
Recently Issued Accounting Pronouncements
For recently issued accounting announcements, see “Recently Issued Accounting Pronouncements” in Note 2,
Significant Accounting Policies and Recent Accounting Pronouncements, in our Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment
portfolio. We consider cash invested in highly liquid financial instruments with a remaining maturity of three months or
less at the date of purchase to be cash equivalents. Investments in highly liquid financial instruments with maturities greater
than three months are classified as short-term investments. We generally hold securities until maturity; however, they may
be sold under certain circumstances, including, but not limited to, when necessary for the funding of acquisitions and other
strategic investments. As a result of this policy, we classify our investment portfolio as available-for-sale. We invest in
high-credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. As stated in our policy,
we seek to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and
reinvestment risk. We mitigate default risk by investing in safe and high-credit quality securities and by constantly
positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer,
guarantor or depository. The portfolio includes only marketable securities with active secondary or resale markets to
facilitate portfolio liquidity. At December 31, 2020 and 2019, we held primarily cash equivalents and short-term
investments with fixed interest rates. We do not hold any instruments for trading purposes.
Our investment securities are subject to market interest rate risk and will vary in value as market interest rates
fluctuate. To minimize market risk, we invest in high-credit quality issuers and, by policy, limit the amount of credit
exposure to any one issuer, and therefore if market interest rates were to increase or decrease by 10% from interest rates
as of December 31, 2020, or December 31, 2019, the increase or decrease in the fair market value of our portfolio on these
dates would not have been material. We monitor our investments for impairment on a periodic basis. Refer to Note 5,
Marketable Securities, in our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, for a
tabular presentation of our available-for-sale investments and the expected maturity dates.
Foreign Currency Exchange Risk. As of December 31, 2020, our primary transactional currency was the U.S.
dollar; in addition, we hold cash in Swiss francs and euros to fund the operation of our Swiss subsidiary. Cash balances
held in foreign countries are subject to local banking laws and may bear higher or lower risk than cash deposited in the
United States. The following represents the potential impact on our pretax income from a change in the value of the U.S.
dollar compared to the Swiss franc and euro as of December 31, 2020. This sensitivity analysis applies a change in the
U.S. dollar value of 5% and 10%.
(in thousands of USD)
Swiss franc and euro foreign exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31, 2020
5%
10%
121 $
242
The foreign exchange rate fluctuation between the U.S. dollar versus the Swiss franc and euro is recorded in other
income in our consolidated statements of income.
We have sales offices in various other foreign countries in which our expenses are denominated in the local
currency, primary Asia and Western Europe. From time to time we may enter into foreign currency hedging contracts to
hedge certain foreign currency transactions. As of December 31, 2020, and December 31, 2019, we did not have an open
foreign currency hedge program utilizing foreign currency forward exchange contracts.
With two of our major suppliers, Seiko Epson Corporation (Epson) and ROHM Lapis Semiconductor Co., Ltd.
(Lapis) we have wafer supply agreements based in U.S. dollars; however, our agreements with Epson and Lapis also allow
for mutual sharing of the impact of the exchange rate fluctuation between Japanese yen and the U.S. dollar. Each year, our
management and these suppliers review and negotiate pricing; the negotiated pricing is denominated in U.S. dollars but is
subject to contractual exchange rate provisions. The fluctuation in the exchange rate is shared equally between us and each
of these suppliers.
32
Nevertheless, as a result of our above-mentioned supplier agreements, our gross margin is influenced by
fluctuations in the exchange rate between the U.S. dollar and the Japanese yen. All else being equal, a 10% change in the
value of the U.S. dollar compared to the Japanese yen would eventually result in a corresponding change in our gross
margin of approximately 1.0%; this sensitivity may increase or decrease depending on the percentage of our wafer supply
that we purchase from some of our Japanese suppliers and could subject our gross profit and operating results to the
potential for material fluctuations.
33
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Power Integrations, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Power Integrations, Inc. and subsidiaries (the
"Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with the accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 5, 2021 expressed an unqualified opinion on the Company's
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 12 to the financial statements, effective January 1, 2019, the Company adopted Accounting Standards
Update (ASU) 2016-02, Leases (Topic 842), using the optional transition method.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined
that there are no critical audit matters.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 5, 2021
We have served as the Company’s auditor since 2005.
34
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
2020
2019
(In thousands, except par value)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Short-term marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTY AND EQUIPMENT, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTANGIBLE ASSETS, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEFERRED TAX ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued payroll and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LONG-TERM INCOME TAXES PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEFERRED TAX LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value
Authorized - 280,000 shares
Outstanding - 59,910 and 58,862 shares in 2020 and 2019, respectively . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
258,874 $
190,318
35,910
102,878
13,252
601,232
166,188
12,506
91,849
3,339
28,225
903,339 $
34,712 $
14,806
902
12,106
62,526
15,588
75
14,739
92,928
178,690
232,398
24,274
90,380
15,597
541,339
116,619
16,865
91,849
2,836
34,388
803,896
27,433
13,408
584
9,051
50,476
14,617
164
14,093
79,350
28
190,920
(2,163)
621,626
810,411
903,339 $
28
152,117
(3,130)
575,531
724,546
803,896
The accompanying notes are an integral part of these consolidated financial statements.
35
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
NET REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 488,318 $ 420,669 $ 415,955
201,167
COST OF REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,728
214,788
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,590
207,267
213,402
2018
2020
Year Ended December 31,
2019
OPERATING EXPENSES:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,711
54,497
36,895
—
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,103
70,487
4,764
75,251
4,075
71,176 $ 193,468 $
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROVISION (BENEFIT) FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
73,470
54,297
37,582
(168,969)
(3,620)
217,022
5,392
222,414
28,946
70,580
53,064
35,496
—
159,140
55,648
4,116
59,764
(10,220)
69,984
EARNINGS PER SHARE:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.19 $
1.17 $
3.31 $
3.24 $
1.19
1.16
SHARES USED IN PER SHARE CALCULATION:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59,657
60,845
58,534
59,632
58,912
60,294
The accompanying notes are an integral part of these consolidated financial statements. The Earnings Per Share
and Shares Used in Per Share Calculation information presented above reflects the effect of the August 2020 stock split.
Refer to Note 10, Earnings Per Share, in this Form 10-K for details.
36
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of $0 tax in 2020, 2019 and
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on marketable securities, net of $0 tax in 2020, 2019 and
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized actuarial gain (loss) on pension benefits, net of tax of ($308),
$497, and ($144) in 2020, 2019 and 2018, respectively . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL COMPREHENSIVE INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2019
2020
71,176 $ 193,468 $
2018
69,984
(183)
(518)
(236)
849
161
307
843
967
(1,772)
(1,441)
525
450
70,434
72,143 $ 192,027 $
The accompanying notes are an integral part of these consolidated financial statements.
37
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Shares Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive Retained
Loss
Earnings
(2,139) $ 351,408 $
Total
Stockholders’
Equity
547,682
—
176
1,130
(242)
1,182
(3,144)
(In thousands)
BALANCE AT JANUARY 1, 2018 . . . . . . . . . . . . . . 59,564 $
Issuance of common stock under employee stock
option and stock award plans . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . .
Issuance of common stock under employee stock
purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense related to
employee stock options and awards . . . . . . . . . . . . . . .
Stock-based compensation expense related to
—
employee stock purchases . . . . . . . . . . . . . . . . . . . . . .
Payment of dividends to stockholders . . . . . . . . . . . . .
—
—
Unrealized actuarial gain on pension benefits . . . . . . .
Unrealized gain on marketable securities . . . . . . . . . .
—
—
Foreign currency translation adjustment . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
BALANCE AT DECEMBER 31, 2018 . . . . . . . . . . . . 57,778
Issuance of common stock under employee stock
option and stock award plans . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . .
Issuance of common stock under employee stock
purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense related to
employee stock awards . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense related to
—
employee stock purchases . . . . . . . . . . . . . . . . . . . . . .
—
Payment of dividends to stockholders . . . . . . . . . . . . .
Unrealized actuarial loss on pension benefits . . . . . . .
—
—
Unrealized gain on marketable securities . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . .
—
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
BALANCE AT DECEMBER 31, 2019 . . . . . . . . . . . . 58,862
Issuance of common stock under employee stock
option and stock award plans . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . .
Issuance of common stock under employee stock
purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense related to
employee stock awards . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense related to
employee stock purchases . . . . . . . . . . . . . . . . . . . . . .
Payment of dividends to stockholders . . . . . . . . . . . . .
Unrealized actuarial gain on pension benefits . . . . . . .
Unrealized gain on marketable securities . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BALANCE AT DECEMBER 31, 2020 . . . . . . . . . . . . 59,910 $
—
—
—
—
—
—
963
(63)
148
196
—
—
29 $ 198,384 $
—
(1)
4,010
(103,153)
—
5,343
—
20,027
—
—
—
—
—
—
28
—
—
—
1,553
—
—
—
—
—
126,164
4,359
(7,302)
5,549
—
21,686
—
—
—
—
—
—
28
—
—
—
1,661
—
—
—
—
—
152,117
4,608
(2,636)
5,919
—
28,952
—
—
—
—
—
—
28 $ 190,920 $
1,960
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
525
161
(236)
—
(1,689)
—
(18,823)
—
—
—
69,984
402,569
—
—
—
—
—
—
—
—
—
—
(1,772)
849
(518)
—
(3,130)
—
(20,506)
—
—
—
193,468
575,531
—
—
—
—
—
—
—
—
—
—
843
307
(183)
—
—
(25,081)
—
—
—
71,176
(2,163) $ 621,626 $
4,010
(103,154)
5,343
20,027
1,553
(18,823)
525
161
(236)
69,984
527,072
4,359
(7,302)
5,549
21,686
1,661
(20,506)
(1,772)
849
(518)
193,468
724,546
4,608
(2,636)
5,919
28,952
1,960
(25,081)
843
307
(183)
71,176
810,411
The accompanying notes are an integral part of these consolidated financial statements. The Shares presented
above reflects the effect of the August 2020 stock split. Refer to Note 10, Earnings Per Share, in this Form 10-K for
details.
38
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2020
Year Ended December 31,
2019
2018
71,176
$
193,468
$
69,984
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premium (accretion of discount) on marketable securities . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accounts receivable allowance for credit losses, net . . .
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . .
23,743
4,359
525
30,912
705
(592)
(336)
(11,300)
(12,498)
9,153
5,697
4,095
125,639
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of technology licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and maturities of marketable securities . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . .
(70,598)
651
—
(109,703)
151,385
(28,265)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock under employee stock plans . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of dividends to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from draw on line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,527
(2,636)
(25,081)
—
—
(17,190)
19,190
5,213
249
23,347
(192)
4,019
57
(13,259)
(9,523)
(2,132)
(6,556)
10,618
224,499
(24,114)
—
(1,026)
(207,240)
70,334
(162,046)
9,908
(7,302)
(20,506)
—
—
(17,900)
18,918
5,267
553
21,580
227
(4,465)
(28)
5,754
(23,770)
(1,495)
1,336
(9,897)
83,964
(24,677)
—
(900)
(62,833)
157,551
69,141
9,353
(103,153)
(18,823)
8,000
(8,000)
(112,623)
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . .
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $
80,184
178,690
258,874
$
44,553
134,137
178,690
$
40,482
93,655
134,137
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Unpaid property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Unpaid technology licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,937
—
$
$
4,355
—
$
$
1,818
100
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) for income taxes, net (Note 11) . . . . . . . . . . . . . . . . . . . . $
(1,973)
$
21,327
$
7,437
The accompanying notes are an integral part of these consolidated financial statements.
39
POWER INTEGRATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
Power Integrations, Inc. (“Power Integrations” or the “Company”), incorporated in California on March 25, 1988,
and reincorporated in Delaware in December 1997, designs, develops, manufactures and markets analog and mixed-signal
integrated circuits (ICs) and other electronic components and circuitry used in high-voltage power conversion. The
Company’s products are used in power converters that convert electricity from a high-voltage source to the type of power
required for a specified downstream use. A large percentage of the Company’s products are ICs used in AC-DC power
supplies, which convert the high-voltage AC from a wall outlet to the low-voltage DC required by most electronic devices.
Power supplies incorporating the Company’s products are used with all manner of electronic products including mobile
phones, computing and networking equipment, appliances, electronic utility meters, battery-powered tools, industrial
controls, and “home-automation,” or “internet of things” applications such as networked thermostats, power strips and
other building-automation and security devices. The Company also supplies high-voltage LED drivers, which are AC-DC
ICs specifically designed for lighting applications that utilize light-emitting diodes. In 2018, the Company introduced a
new category of power-conversion ICs: a family of motor-driver ICs addressing brushless DC (BLDC) motors used in
refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications. The Company
also offers high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical isolation
components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors (IGBTs)
and silicon-carbide (SiC) MOSFETs. These combinations of switches and drivers are used for power conversion in high-
power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors, solar- and
wind-power systems, electric vehicles and high-voltage DC transmission systems.
2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:
Significant Accounting Policies and Estimates
Segment Reporting
The Company is organized and operates as one reportable segment, the design, development, manufacture and
marketing of integrated circuits and related components for use primarily in the high-voltage power conversion markets.
The Company’s chief operating decision maker, the Chief Executive Officer, reviews financial information presented on
a consolidated basis for purposes of making operating decisions and assessing financial performance.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries
after elimination of all intercompany transactions and balances.
Estimates
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles
(GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis,
the Company evaluates its estimates, including those related to revenue recognition and allowances for receivables and
inventories. These estimates are based on historical facts and various other factors, which the Company believes to be
reasonable at the time the estimates are made. However, as the effects of future events cannot be determined with precision,
actual results could differ significantly from management’s estimates.
Revenue Recognition
The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from
Contracts with Customers, and all related appropriate guidance. The Company recognizes revenue under the core principle
to depict the transfer of control to the Company’s customers in an amount reflecting the consideration the Company expects
to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify
40
the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price,
(4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a
performance obligation is satisfied.
Product revenues consist of sales to original equipment manufacturers, or OEMs, merchant power supply
manufacturers and distributors. The Company considers customer purchase orders, which in some cases are governed by
master sales agreements, to be the contracts with a customer. In situations where sales are to a distributor, the Company
has concluded that its contracts are with the distributor as the Company holds a contract bearing enforceable rights and
obligations only with the distributor. As part of its consideration of the contract, the Company evaluates certain factors
including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer
products, each of which is distinct, to be the identified performance obligations. In determining the transaction price the
Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the
Company expects to be entitled. As the Company’s standard payment terms are less than one year, the Company has
elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing
component. The Company allocates the transaction price to each distinct product based on their relative standalone selling
price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable
input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control
of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically
occurs at shipment. Further, in determining whether control has transferred, the Company considers if there is a present
right to payment and legal title, along with risks and rewards of ownership having transferred to the customer.
Frequently, the Company receives orders for products to be delivered over multiple dates that may extend across
several reporting periods. The Company invoices for each delivery upon shipment and recognizes revenues for each
distinct product delivered, assuming transfer of control has occurred. As scheduled delivery dates are within one year,
under the optional exemption provided by ASC 606-10-50-14 revenues allocated to future shipments of partially completed
contracts are not disclosed. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense
commissions when incurred as the amortization period of the commission asset the Company would have otherwise
recognized is less than one year.
Sales to international customers that are shipped from the Company’s facility outside of the United States are
pursuant to EX Works, or EXW, shipping terms, meaning that control of the product transfers to the customer upon
shipment from the Company’s foreign warehouse. Sales to international customers that are shipped from the Company’s
facility in California are pursuant to Delivered at Frontier, or DAF, shipping terms. As such, control of the product passes
to the customer when the shipment reaches the destination country and revenue is recognized upon the arrival of the
product in that country. Shipments to customers in the Americas are pursuant to Free on Board, or FOB, point of origin
shipping terms meaning that control is passed to the customer upon shipment.
Sales to most distributors are made under terms allowing certain price adjustments and limited rights of return
(known as “stock rotation”) of the Company’s products held in their inventory or upon sale to their end customers. Revenue
from sales to distributors is recognized upon the transfer of control to the distributor. Frequently, distributors need to sell
at a price lower than the standard distribution price in order to win business. At the time the distributor invoices its customer
or soon thereafter, the distributor submits a “ship and debit” price adjustment claim to the Company to adjust the
distributor’s cost from the standard price to the pre-approved lower price. After the Company verifies that the claim was
pre-approved, a credit memo is issued to the distributor for the ship and debit claim. In determining the transaction price,
the Company considers ship and debit price adjustments to be variable consideration. Such price adjustments are estimated
using the expected value method based on an analysis of actual ship and debit claims, at the distributor and product level,
over a period of time considered adequate to account for current pricing and business trends. Historically, actual price
adjustments for ship and debit claims relative to those estimated and included when determining the transaction price have
not materially differed. Stock rotation rights grant the distributor the ability to return certain specified amounts of
inventory. Stock rotation adjustments are an additional form of variable consideration and are also estimated using the
expected value method based on historical return rates. Historically, distributor stock rotation adjustments have not been
material.
Sales to certain distributors are made under terms that do not include rights of return or price concessions after
the product is shipped to the distributor. Accordingly, upon application of steps one through five above, product revenue
is recognized upon shipment and transfer of control.
41
The Company generally provides an assurance warranty that its products will substantially conform to the
published specifications for twelve months from the date of shipment. The Company’s liability is limited to either a credit
equal to the purchase price or replacement of the defective part. Returns under warranty have historically been immaterial.
As such, the Company does not record a specific warranty reserve or consider activities related to such warranty, if any,
to be a separate performance obligation.
Inventories
Inventories (which consist of costs associated with the purchases of wafers from domestic and offshore foundries
and of packaged components from offshore assembly manufacturers, as well as internal labor and overhead associated
with the testing of both wafers and packaged components) are stated at the lower of cost (first-in, first-out) or market.
Provisions, when required, are made to reduce inventories to their estimated net realizable values.
Income Taxes
Income-tax expense is an estimate of current income taxes payable or refundable in the current fiscal year based
on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences and carry-
forwards that are recognized for financial reporting and income tax purposes.
The Company accounts for income taxes under the provisions of ASC 740, Income Taxes. Under the provisions
of ASC 740, deferred tax assets and liabilities are recognized based on the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
Company recognizes valuation allowances to reduce any deferred tax assets to the amount that it estimates will more likely
than not be realized based on available evidence and management’s judgment. The Company limits the deferred tax assets
recognized related to certain officers’ compensation to amounts that it estimates will be deductible in future periods based
upon Internal Revenue Code Section 162(m). In the event that the Company determines, based on available evidence and
management judgment, that all or part of the net deferred tax assets will not be realized in the future, it would record a
valuation allowance in the period the determination is made. In addition, the calculation of tax liabilities involves
significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these
uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s
results of operations and financial position.
Goodwill and Intangible Assets
Goodwill and the Company’s domain name are evaluated in accordance with ASC 350-10, Goodwill and Other
Intangible Assets, and an impairment analysis is conducted on an annual basis, or sooner if indicators exist for a potential
impairment.
In accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived
assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset.
Cash and Cash Equivalents
The Company considers cash invested in highly liquid financial instruments with maturities of three months or
less at the date of purchase to be cash equivalents.
Marketable Securities
The Company generally holds securities until maturity; however, they may be sold under certain circumstances
including, but not limited to, when necessary for the funding of acquisitions and other strategic investments. As a result,
the Company classifies its investment portfolio as available-for-sale. The Company classifies all investments with a
42
maturity date greater than three months at the date of purchase as short-term marketable securities in its consolidated
balance sheet. As of December 31, 2020, and December 31, 2019, the Company’s marketable securities consisted
primarily of commercial paper, corporate bonds, government securities and/or other high-quality commercial securities.
Employee Benefits Plan
The Company sponsors a 401(k) tax-deferred savings plan for all employees in the United States who meet certain
eligibility requirements. Participants may contribute up to the amount allowable as a deduction for federal income tax
purposes. The Company is not required to contribute; however, the Company contributes a certain percentage of employee
annual salaries on a discretionary basis, not to exceed an established threshold. The Company provided for a contribution
of approximately $1.8 million, $1.4 million and $1.3 million in 2020, 2019 and 2018, respectively.
Retirement Benefit Obligations (Pension)
The Company recognizes the over-funded or under-funded status of a defined benefit pension or post-retirement
plan as an asset or liability in the accompanying consolidated balance sheets. Actuarial gains and losses are recorded in
accumulated other comprehensive loss, a component of stockholders’ equity, and are amortized as a component of net
periodic cost over the remaining estimated service period of participants.
Foreign Currency Risk and Foreign Currency Translation
As of December 31, 2020, the Company’s primary transactional currency was U.S. dollars; in addition, the
Company holds cash in Swiss francs and euros to fund the operations of the Company’s Swiss subsidiary. The foreign
exchange rate fluctuation between the U.S. dollar versus the Swiss franc and euro is recorded in other income in the
consolidated statements of income.
Gains and losses arising from the remeasurement of non-functional currency balances are recorded in other
income in the accompanying consolidated statements of income. The Company realized a foreign exchange transaction
loss of $0.5 million, $0.3 million and $0.1 million in 2020, 2019, and 2018 respectively.
The functional currencies of the Company’s other subsidiaries are the local currencies. Accordingly, all assets
and liabilities are translated into U.S. dollars at the current exchange rates as of the applicable balance sheet date. Revenues
and expenses are translated at the average exchange rate prevailing during the period. Cumulative gains and losses from
the translation of the foreign subsidiaries’ financial statements have been included in stockholders’ equity.
Warranty
The Company generally warrants that its products will substantially conform to the published specifications for
12 months from the date of shipment. The Company’s liability is limited to either a credit equal to the purchase price or
replacement of the defective part. Returns under warranty have historically been immaterial, and as a result, the Company
does not record a specific warranty reserve.
Advertising
Advertising costs are expensed as incurred and amounted to $1.2 million, $1.4 million and $1.2 million in 2020,
2019 and 2018, respectively.
Research and Development
Research and development costs are expensed as incurred.
Indemnifications
The Company sells products to its distributors under contracts, collectively referred to as Distributor Sales
Agreements (DSA). Each DSA contains the relevant terms of the contractual arrangement with the distributor, and
generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages
that may be awarded against the distributor in the event the Company’s products are found to infringe upon a patent,
copyright, trademark, or other proprietary right of a third party (Customer Indemnification). The DSA generally limits the
43
scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including,
but not limited to, limitations based on time and geography, and a right to replace an infringing product. The Company
also, from time to time, has granted a specific indemnification right to individual customers.
The Company believes its internal development processes and other policies and practices limit its exposure
related to such indemnifications. In addition, the Company requires its employees to sign a proprietary information and
inventions agreement, which assigns the rights to its employees’ development work to the Company. To date, the Company
has not had to reimburse any of its distributors or customers for any losses related to these indemnifications and no material
claims were outstanding as of December 31, 2020. For several reasons, including the lack of prior indemnification claims
and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum
amount of potential future payments, if any, related to such indemnifications.
Adoption of New Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-
13, Financial Instruments – Credit Losses (Topic 326), which modifies the measurement of expected credit losses on
certain financial instruments. In addition, for available-for-sale debt securities, the standard eliminates the concept of other-
than-temporary impairment and requires the recognition of an allowance for credit losses rather than reductions in the
amortized cost of the securities. The Company adopted the new standard in the first quarter of 2020, effective January 1,
2020, using the modified-retrospective approach. For available-for-sale debt securities, the Company has made a policy
election to present separately accrued interest receivable within prepaid expenses and other current assets on the
consolidated balance sheet. Upon adoption, there was no impact on the Company’s consolidated financial statements.
44
3. COMPONENTS OF THE COMPANY’S CONSOLIDATED BALANCE SHEETS:
Accounts Receivable
(In thousands)
Accounts receivable trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued ship and debit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for stock rotation and rebate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020
66,703 $
(26,435)
(3,931)
(427)
35,910 $
2019
61,036
(33,475)
(2,524)
(763)
24,274
December 31, December 31,
The Company maintains an allowance for estimated credit losses resulting from the inability of customers to
make required payments. This allowance is established using estimates formulated by the Company’s management based
upon factors such as the composition of the accounts receivable aging, historical losses, changes in payments patterns,
customer creditworthiness, and current economic trends. Receivables determined to be uncollectible are written off and
deducted from the allowance.
(In thousands)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Provision for credit loss expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables written off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Allowance for Credit Losses
Year Ended
December 31, 2020
(763)
(621)
198
759
(427)
Inventories
(In thousands)
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020
32,131 $
39,469
31,278
102,878 $
2019
39,058
25,982
25,340
90,380
December 31, December 31,
Property and Equipment
(In thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software and hardware and office furniture and fixtures . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020
22,189 $
34,886
64,808
202,698
55,591
380,172
(213,984)
166,188 $
2019
21,790
18,604
55,785
168,576
52,265
317,020
(200,401)
116,619
December 31, December 31,
Depreciation expense for property and equipment for fiscal years ended December 31, 2020, 2019 and 2018, was
approximately $23.7 million, $19.2 million and $18.9 million, respectively, and was determined using the straight-line
method over the following useful lives:
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software and hardware and office furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 - 40 years
2 - 8 years
4 - 7 years
45
Total property and equipment (excluding accumulated depreciation) located in the United States at December 31,
2020, 2019 and 2018, was approximately $167.0 million, $160.7 million and $167.6 million, respectively. In 2020, 2019
and 2018 approximately 14%, 14% and 12%, respectively, of total property and equipment (excluding accumulated
depreciation) was held in Thailand by one of the Company’s subcontractors. Also in 2020, approximately 14% of total
property and equipment was held by one of the Company’s subcontractors in Malaysia. No other country held 10% or
more of total property and equipment in the periods presented.
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss for the three years ended December 31, 2020:
(In thousands)
Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss) before reclassifications . .
Amounts reclassified from accumulated other
comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications . .
Amounts reclassified from accumulated other
comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications . .
Amounts reclassified from accumulated other
comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . $
Unrealized Gains
and Losses on
Securities
Available-for-Sale Defined Benefit
Pension Items
(1,237)
401
(427) $
161
Foreign
Currency
Items
Total
$
(475) $ (2,139)
326
(236)
—
161
(266)
849
—
849
583
307
—
307
890 $
124 (1)
525
(712)
(1,839)
—
(236)
(711)
(518)
124
450
(1,689)
(1,508)
67 (1)
(1,772)
(2,484)
636
—
(518)
(1,229)
(183)
67
(1,441)
(3,130)
760
207 (1)
843
(1,641)
—
(183)
207
967
$ (1,412) $ (2,163)
(1) This component of accumulated other comprehensive loss is included in the computation of net periodic pension cost for the years
ended December 31, 2020, 2019 and 2018.
4. FAIR VALUE MEASUREMENTS:
ASC 820-10, Fair Value Measurements, clarifies that fair value is an exit price, representing the amount that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based on assumptions that market participants
would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as
quoted prices for identical assets in active markets; (Level 2) inputs other than the quoted prices in active markets that are
observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which
requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market
data, when available, and to minimize the use of unobservable inputs when determining fair value.
The Company’s cash equivalents and investment instruments are classified within Level 1 or Level 2 of the fair-
value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing
sources with reasonable levels of price transparency. The type of instrument valued based on quoted market prices in
active markets primarily includes money market securities. This type of instrument is generally classified within Level 1
of the fair-value hierarchy. The types of instruments valued based on other observable inputs (Level 2 of the fair-value
hierarchy) include investment-grade corporate bonds and commercial paper. Such types of investments are valued by using
a multi-dimensional relational model, the inputs are primarily benchmark yields, reported trades, broker/dealer quotes,
issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research
publications. The Company does not hold any instruments that would be classified within Level 3 of the fair-value
hierarchy.
46
The fair value hierarchy of the Company’s cash equivalents and marketable securities at December 31, 2020, and
2019, was as follows:
(In thousands)
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . $
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(In thousands)
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . $
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fair Value Measurement at
December 31, 2020
Quoted Prices in
Total Fair Value
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
146,658 $
253,855
1,634
402,147 $
— $
—
1,634
1,634 $
146,658
253,855
—
400,513
Fair Value Measurement at
December 31, 2019
Quoted Prices in
Total Fair Value
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
232,398 $
146,955
2,983
382,336 $
— $
—
2,983
2,983 $
232,398
146,955
—
379,353
The Company did not transfer any investments between level 1 and level 2 of the fair value hierarchy in the years
ended December 31, 2020, and 2019.
5. MARKETABLE SECURITIES:
Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding
cash equivalents) at December 31, 2020, were as follows:
(In thousands)
Investments due in 3 months or less:
Amortized
Cost
Gross Unrealized
Gains
Losses
Estimated Fair
Market Value
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,660 $
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,846
63,506
Investments due in 4-12 months:
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,922
125,922
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 189,428 $
— $
44
44
846
846
890 $
— $
—
—
43,660
19,890
63,550
—
—
— $
126,768
126,768
190,318
The Company did not have any investments due in twelve months or greater as of December 31, 2020. Accrued
interest receivable was $0.8 million at December 31, 2020 and was recorded within prepaid expenses and other current
assets on the condensed consolidated balance sheet.
47
Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding
cash equivalents) at December 31, 2019, were as follows:
(In thousands)
Investments due in 3 months or less:
Amortized
Cost
Gross Unrealized
Gains
Losses
Estimated Fair
Market Value
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,934 $
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,934
18 $
18
— $
—
15,952
15,952
Investments due in 4-12 months:
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71,223
71,223
269
269
—
—
71,492
71,492
Investments due in 12 months or greater:
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
144,658
144,658
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 231,815 $
302
302
589 $
(6)
(6)
(6) $
144,954
144,954
232,398
Accrued interest receivable was $1.3 million at December 31, 2019 and was recorded within prepaid expenses
and other current assets on the condensed consolidated balance sheet.
As of December 31, 2020, the Company had no marketable securities classified as available-for-sale (excluding
cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was not recorded. The
following table summarizes marketable securities classified as available-for-sale (excluding cash equivalents) in a
continuous unrealized loss position for which an allowance for credit losses was not recorded at December 31, 2019:
Less Than 12 Months
Estimated Gross
Fair Market Unrealized Fair Market Unrealized Fair Market Unrealized
12 Months or Longer
Estimated Gross
Estimated Gross
Total
(In thousands)
December 31, 2019
Value
Losses
Value
Losses
Value
Losses
Corporate securities . . . . . . . . . . . . . . . $ 13,069 $
Total marketable securities . . . . . . . . $ 13,069 $
(6) $
(6) $
— $
— $
— $ 13,069 $
— $ 13,069 $
(6)
(6)
The weighted average interest rate of investments at December 31, 2020 and 2019, was approximately 0.89% and
2.17%, respectively. In the year ended December 31, 2020, no unrealized losses on marketable securities were recognized
in income.
6. GOODWILL AND INTANGIBLE ASSETS:
The carrying amount of goodwill as of December 31, 2020 and 2019 was $91.8 million with no changes to
goodwill in any of the respective fiscal years.
Intangible assets consist primarily of developed technology, acquired licenses, customer relationships, trade
name, domain name, in-process R&D and patent rights, and are reported net of accumulated amortization.
The Company amortizes the cost of all intangible assets over the shorter of the estimated useful life or the term
of the developed technology, customer relationships, technology licenses and in-place leases, which range from two to
twelve years, with the exception of $1.3 million paid to acquire an internet domain name. The Company acquired the rights
to the internet domain name www.power.com, which is now the Company’s primary domain name; the cost to acquire the
domain name has been recorded as an intangible asset and will not be amortized as it has an indefinite useful life.
Amortization of acquired intangible assets was approximately $4.4 million, $5.2 million and $5.3 million in the years
ended December 31, 2020, 2019 and 2018, respectively. The Company does not believe there is any significant residual
value associated with the following intangible assets:
48
December 31, 2020
Accumulated
Amortization
Net
Gross
December 31, 2019
Accumulated
Amortization
Net
(In thousands)
Domain name . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,261 $
Developed technology. . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . .
Technology licenses . . . . . . . . . . . . . . . . . . . .
— $ 1,261
12,027
1,932
1,645
Total intangible assets . . . . . . . . . . . . . . . . . $ 57,847 $ (45,341) $ 12,506 $ 61,177 $ (44,312) $ 16,865
(25,933)
(18,098)
(281)
(29,126)
(15,687)
(528)
37,960
20,030
1,926
37,960
16,700
1,926
— $ 1,261 $ 1,261 $
8,834
1,013
1,398
Gross
The estimated future amortization expense related to definite-lived intangible assets at December 31, 2020, is as
follows:
Fiscal Year
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated
Amortization
(In thousands)
3,494
2,415
2,173
1,279
832
1,052
11,245
$
$
7. STOCK PLANS AND SHARE BASED COMPENSATION:
The share and per share information for all periods presented in this Form 10-K has been adjusted for the effect
of the August 2020 stock split. Refer to Note 10, Earnings Per Share, in this Form 10-K for details.
Stock Plans
As of December 31, 2020, the Company had three stock-based compensation plans (the “Plans”) which are
described below.
2007 Equity Incentive Plan
The 2007 Equity Incentive Plan (2007 Plan) was adopted by the board of directors on September 10, 2007, and
approved by the stockholders on November 7, 2007, as an amendment and restatement of the 1997 Stock Option Plan
(1997 Plan). The 2007 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock
awards, restricted stock unit (RSU) awards, stock appreciation rights, performance-based (PSU) awards, long-term
performance based (PRSU) awards and other stock awards to employees, directors and consultants. Pursuant to the 2007
Plan, the exercise price for incentive stock options and non-statutory stock options is generally at least 100% of the fair
market value of the underlying shares on the date of grant. Options generally vest over 48 months measured from the date
of grant. Options generally expire no later than ten years after the date of grant, subject to earlier termination upon an
optionee’s cessation of employment or service. The 2007 Plan expired in September 2017 with no further grants to be
made under this plan; however previous grants under this plan shall remain outstanding until they are exercised, vest,
forfeited or expire.
2016 Incentive Award Plan
The 2016 Incentive Award Plan (2016 Plan) was adopted by the board of directors on March 17, 2016 and
approved by the stockholders on May 13, 2016. The 2016 Plan provides for the grant of RSU awards, PSU awards and
PRSU awards. No other forms of equity-based awards, including stock options and stock appreciation rights, may be
granted under the 2016 Plan. As of December 31, 2020, 2.2 million awards have been issued and approximately 2.8 million
shares of common stock remain available for future grant under the 2016 Plan.
49
1997 Employee Stock Purchase Plan
Under the 1997 Employee Stock Purchase Plan (Purchase Plan), eligible employees may apply accumulated
payroll deductions, which may not exceed 15% of an employee’s compensation, to the purchase of shares of the
Company’s common stock at periodic intervals. The purchase price of stock under the Purchase Plan is equal to 85% of
the lower of (i) the fair market value of the Company’s common stock on the first day of each offering period, or (ii) the
fair market value of the Company’s common stock on the purchase date (as defined in the Purchase Plan). Each offering
period consists of one purchase period of approximately six months' duration. An aggregate of 7.0 million shares of
common stock were reserved for issuance to employees under the Purchase Plan. As of December 31, 2020, of the shares
reserved for issuance, 6.6 million shares had been purchased and 0.4 million shares were reserved for future issuance under
the Purchase Plan.
Shares Reserved
As of December 31, 2020, the Company had approximately 3.4 million shares of common stock reserved for
future grant under all stock plans.
Stock-Based Compensation
The Company applies the provisions of ASC 718-10, Stock Compensation. Under the provisions of ASC 718-10,
the Company recognizes the fair value of stock-based compensation in its financial statements over the requisite service
period of the individual grants, which generally equals a four-year vesting period. The Company uses estimates of
volatility, expected term, risk-free interest rate, dividend yield and forfeitures in determining the fair value of these awards
and the amount of compensation expense to recognize. The Company uses the straight-line method to amortize all stock
awards granted over the requisite service period of the award.
The following table summarizes the stock-based compensation expense recognized in accordance with ASC
718-10 for the years ended December 31, 2020, 2019 and 2018:
(In thousands)
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2019
1,237 $
8,423
5,015
8,672
23,347 $
2020
1,963 $
10,378
6,290
12,281
30,912 $
2018
1,097
7,688
4,729
8,066
21,580
The following table summarizes total compensation expense related to unvested awards not yet recognized, net
of expected forfeitures, and the weighted average period over which it is expected to be recognized as of December 31,
2020:
Unrecognized Compensation
Expense for Unvested
Awards
(In thousands)
Weighted Average
Remaining Recognition
Period
(In years)
Long-term performance-based awards . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total unrecognized compensation expense . . . . . . . . . . . . . . . . .
$
$
5,810
34,654
202
40,666
1.64
2.62
0.08
Stock-based compensation expense in the year ended December 31, 2020, was approximately $30.9 million
(comprising approximately $18.7 million related to restricted stock units, $10.2 million related to performance-based
awards and $2.0 million related to the Company’s Purchase Plan).
Stock-based compensation expense in the year ended December 31, 2019, was approximately $23.3 million
(comprising approximately $17.5 million related to restricted stock units, $4.1 million related to performance-based awards
and $1.7 million related to the Company’s Purchase Plan).
50
Stock-based compensation expense in the year ended December 31, 2018, was approximately $21.6 million
comprising approximately $16.6 million related to restricted stock units, $3.4 million related to performance-based awards
and $1.6 million related to the Company’s Purchase Plan).
The Company did not grant stock options in the years ended December 31, 2020, 2019 and 2018, and therefore
no fair-value assumptions are reported.
The fair value of employees’ stock purchase rights under the Purchase Plan was estimated using the Black-
Scholes model with the following weighted-average assumptions used during the three years ended December 31, 2020,
2019 and 2018:
Year Ended December 31,
2020
0.90 %
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47 %
Expected volatility rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.78 %
Expected term of purchase rights (in years) . . . . . . . . . . . . . . . . . . . . . . . . .
0.50
Weighted-average estimated fair value of purchase rights . . . . . . . . . . . . . . $ 15.73
2019
2.28 %
37 %
0.91 %
0.50
$ 19.39
2018
1.94 %
31 %
0.89 %
0.50
$ 17.33
A summary of stock options outstanding as of December 31, 2020, and activity during three years then ended, is
presented below:
Weighted-
Average
Exercise
Shares
(In thousands)
Weighted-
Average
Remaining
Contractual
Term
(In years)
Aggregate
Intrinsic Value
(In thousands)
Outstanding at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . .
Vested and Exercisable at December 31, 2020 . . . . . . . . . . . . . .
1,022 $
—
(352) $
—
670 $
—
(335) $
—
335 $
—
(243) $
—
92 $
92
Price
14.52
—
11.30
—
16.21
—
12.98
—
19.44
—
18.99
—
20.63
1.05 $
1.05 $
5,643
5,643
The total intrinsic value of options exercised during the year ended December 31, 2020, 2019 and 2018, was $9.1
million, $8.3 million and $7.5 million, respectively.
The following table summarizes the stock options outstanding at December 31, 2020:
(shares in thousands)
Range of Exercise Prices
$18.48 - $19.75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21.44 - $21.44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Outstanding
Weighted Average Weighted
Remaining
Contractual Term
(in years)
Average
Exercise
Price
Options Exercisable
Weighted
Average
Exercise
Price
Options
Exercisable
0.38 $ 18.77
1.35 $ 21.44
1.05 $ 20.63
28 $ 18.77
64 $ 21.44
92 $ 20.63
Options
Outstanding
28
64
92
51
PSU Awards
Under the performance-based awards program, the Company grants awards in the performance year in an amount
equal to twice the target number of shares to be issued if the maximum performance metrics are met. The number of shares
that are released at the end of the performance year can range from zero to 200% of the target number depending on the
Company’s performance. The performance metrics of this program are annual targets consisting of a combination of net
revenue, non-GAAP operating earnings and strategic goals.
As the net revenue, non-GAAP operating income and strategic goals are considered performance conditions,
expense associated with these awards, net of estimated forfeitures, is recognized over the service period based on an
assessment of the achievement of the performance targets. The fair value of these PSUs is determined using the fair value
of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected
to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized
and any previously recognized compensation is reversed.
A summary of PSU awards outstanding as of December 31, 2020, and activity during the three years then ended,
is presented below:
Weighted-
Average
Weighted-
Average
Remaining
Aggregate
Shares
Grant Date Fair Contractual Term Intrinsic Value
(In thousands)
(In years)
Outstanding at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2018 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2019 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2020 . . . . . . . . . . . . . . . . . . . .
Outstanding and expected to vest at December 31, 2020 . . .
(In thousands) Value Per Share
32.00
31.44
32.00
31.44
31.44
35.06
31.44
35.06
35.06
46.31
35.06
—
46.27
158 $
178 $
(158) $
(126) $
52 $
185 $
(52) $
(64) $
121 $
150 $
(121) $
—
150 $
150
— $
— $
12,219
12,219
The grant-date fair value of PSU awards released, which were fully vested, in the years ended December 31,
2020, 2019 and 2018 was approximately $4.2 million, $1.6 million and $5.1 million, respectively.
PRSU Awards (Long-term Performance Based)
The Company’s PRSU program provides for the issuance of PRSUs which will vest based on the Company’s
performance measured against the PRSU Plan’s established revenue targets. The PRSUs were granted in an amount equal
to twice the target number of shares to be issued if the maximum performance metrics are met. The actual number of
shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus
the Company’s performance goals, and may range from zero to 200% of the target number. Recipients of a PRSU award
generally must remain employed by the Company on a continuous basis through the end of the applicable three-year
performance period in order to receive shares subject to that award. The performance goals for PRSUs granted in fiscal
2020, 2019 and 2018 were based on the Company’s annual revenue growth over the respective three-year performance
period.
Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year based on an
assessment of the expected achievement of the performance targets. If the performance conditions are not achieved, no
compensation cost is recognized and any previously recognized compensation is reversed.
52
A summary of PRSU awards outstanding as of December 31, 2020, and activity during the three years then ended,
is presented below:
Weighted-Average Aggregate
Intrinsic
Value
Remaining
Contractual Term
(In years)
(In thousands)
Outstanding at January 1, 2018 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2018 . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2019 . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2020 . . . . . . . . . . . . . . . . . .
Outstanding and expected to vest at December 31, 2020 .
Shares
Weighted-Average
Grant Date Fair
(In thousands) Value Per Share
26.40
29.95
26.23
21.63
27.74
34.09
21.63
31.50
32.03
49.67
—
29.95
41.90
368 $
144 $
(76) $
(10) $
426 $
144 $
(140) $
(143) $
287 $
152 $
—
(138) $
301 $
272
1.51 $
1.54 $
24,637
22,279
In January 2020 it was determined that no shares subject to the PRSUs granted in 2017 vested in aggregate; thus
no shares were released to the Company’s executives in 2020. The grant-date fair value of PRSU awards released, which
were fully vested, in the years ended December 31, 2019 and 2018 was approximately $3.0 million and $2.0 million,
respectively.
RSU Awards
RSUs granted to employees typically vest ratably over a four-year period, and are converted into shares of the
Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the
Company over that period. The fair value of RSUs is determined using the fair value of the Company’s common stock on
the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest.
Compensation expense is recognized on a straight-line basis over the requisite service period of each grant adjusted for
estimated forfeitures.
53
A summary of RSU awards outstanding as of December 31, 2020, and activity during the three years then ended,
is presented below:
Weighted-Average Aggregate
Intrinsic
Value
Remaining
Contractual Term
(In years)
(In thousands)
Outstanding at January 1, 2018 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2018 . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2019 . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2020 . . . . . . . . . . . . . . . . . .
Outstanding and expected to vest at December 31, 2020 .
Shares
Weighted-Average
Grant Date Fair
(In thousands) Value Per Share
27.76
31.43
26.89
29.72
29.10
34.90
28.10
31.72
31.33
44.82
30.25
36.77
35.51
1,896 $
550 $
(592) $
(64) $
1,790 $
582 $
(603) $
(50) $
1,719 $
439 $
(599) $
(41) $
1,518 $
1,423
1.42 $ 124,239
1.36 $ 116,475
The grant-date fair value of RSUs vested in the years ended December 31, 2020, 2019 and 2018, was
approximately $18.1 million, $16.9 million and $15.9 million, respectively.
8. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC NET REVENUES:
Customer Concentration
The Company’s top ten customers accounted for approximately 62%, 54% and 56% of revenues in 2020, 2019
and 2018, respectively. A significant portion of these revenues are attributable to sales of the Company’s products to
distributors of electronic components. These distributors sell the Company’s products to a broad, diverse range of end
users, including OEMs and merchant power supply manufacturers. Sales to distributors in 2020, 2019 and 2018 were
$367.7 million, $304.6 million and $313.9 million, respectively. Direct sales to OEMs and power-supply manufacturers
accounted for the remainder.
The following customers represented 10% or more of the Company’s net revenues for the respective years:
Customer
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Honestar Technologies Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
________________________
Year Ended December 31,
2019
11 %
*
2020
19 %
11 %
2018
14 %
*
*Total customer revenue was less than 10% of net revenues.
No other customers accounted for 10% or more of the Company’s net revenues in the periods presented.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consisted principally
of cash investments and trade receivables. The Company does not have any off-balance-sheet credit exposure related to
its customers. As of December 31, 2020 and December 31, 2019, 90% and 63% of accounts receivable were concentrated
with the Company’s top ten customers, respectively.
54
The following customers represented 10% or more of accounts receivable:
Customer
Powertech Distribution Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
________________________
December 31,
2020
December 31,
2019
10 %
50 %
10 %
*
*Total customer accounts receivable was less than 10% of net accounts receivables.
No other customers accounted for 10% or more of the Company’s accounts receivable in the periods presented.
Geographic Net Revenues
The Company markets its products globally through its sales personnel and a worldwide network of independent
sales representatives and distributors. Geographic net revenues based on “bill to” customer locations were as follows:
(In thousands)
United States of America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Hong Kong/China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Western Europe (excluding Germany) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 488,318 $
2020
11,065 $
306,938
21,650
40,059
33,564
17,453
23,242
34,347
Year Ended December 31,
2018
2019
15,315
10,662 $
218,752
237,341
43,081
36,297
33,877
30,395
49,834
36,025
19,897
15,496
14,403
20,197
34,256
20,796
420,669 $ 415,955
9. COMMON STOCK REPURCHASES AND CASH DIVIDENDS:
Common Stock Repurchases
Over the years the Company’s board of directors has authorized the use of funds to repurchase shares of the
Company’s common stock, including $110.0 million in 2018, with repurchases to be executed according to pre-defined
price/volume guidelines. In 2018, 2019 and 2020 the Company purchased approximately 3,144,000, 242,000 and 63,000
shares, respectively, for approximately $103.2 million, $7.3 million and $2.6 million, respectively. As of December 31,
2020, the Company had $41.3 million available for future stock repurchases, which has no expiration date. Authorization
of future stock repurchase programs is at the discretion of the board of directors and will depend on the Company’s
financial condition, results of operations, capital requirements and business conditions as well as other factors.
Common Stock Dividend
The following table presents the quarterly dividends declared per share of the Company’s common stock for the
periods indicated:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2019
0.085 $
0.085 $
0.085 $
0.095 $
2020
0.095 $
0.105 $
0.110 $
0.110 $
2018
0.080
0.080
0.080
0.080
The Company paid a total of approximately $25.1 million, $20.5 million and $18.8 million in cash dividends
during 2020, 2019 and 2018, respectively.
In January 2018, the Company’s board of directors declared a $0.080 per share quarterly dividend for each quarter
in 2018. In January 2019, the Company’s board of directors declared four quarterly cash dividends of $0.085 per share to
be paid to stockholders of record at the end of each quarter in 2019. In October 2019, the Company’s board of directors
raised the cash dividends per share with the declaration of five cash dividends, consisting of (a) a dividend of $0.01 per
55
share to be paid to stockholders of record at the end of the fourth quarter in 2019, that was in addition to the dividend of
$0.085 per share to be paid to stockholders of record at the end of the fourth quarter in 2019 previously declared by the
board in January 2019, and (b) a dividend of $0.095 per share to be paid to stockholders of record at the end of each quarter
in 2020.
In April 2020, the Company’s board of directors raised the cash dividends with the declaration of three cash
dividends of $0.105 per share (in lieu of the $0.095 per share previously announced in October 2019) to be paid to
stockholders of record at the end of each of the second, third and fourth quarter in 2020. In July 2020, the Company’s
board of directors raised the cash dividends further with the declaration of two cash dividends of $0.11 per share (in lieu
of the $0.105 per share announced in April 2020) to be paid to stockholders of record at the end of each of the third and
fourth quarter in 2020. In January 2021, the Company’s board of directors raised the quarterly cash dividend again by
$0.02 per share with the declaration of four cash dividends of $0.13 per share to be paid to stockholders of record at the
end of each quarter in 2021.
10. EARNINGS PER SHARE:
Basic earnings per share are calculated by dividing net income by the weighted-average shares of common stock
outstanding during the period. Diluted earnings per share are calculated by dividing net income by the weighted-average
shares of common stock and dilutive common equivalent shares outstanding during the period. Dilutive common
equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding
common stock options, the assumed vesting of outstanding restricted stock units, the assumed issuance of awards under
the stock purchase plan and contingently issuable performance-based awards, as computed using the treasury stock
method.
A summary of the earnings per share calculation is as follows:
(In thousands, except per share amounts)
Basic earnings per share:
Year Ended December 31,
2019
2020
2018
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted-average common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
71,176 $ 193,468 $
59,657
58,534
1.19 $
3.31 $
69,984
58,912
1.19
Diluted earnings per share: (1)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted-average common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive awards:
Employee stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted-average common shares . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
71,176 $ 193,468 $
59,657
58,534
69,984
58,912
1,188
60,845
1,098
59,632
1.17 $
3.24 $
1,382
60,294
1.16
(1) The Company includes the shares underlying performance-based awards in the calculation of diluted earnings per share if the
performance conditions have been satisfied as of the end of the reporting period and excludes such shares when the necessary
conditions have not been met. The Company has included in the 2020, 2019 and 2018 calculations those shares that were
contingently issuable upon the satisfaction of the performance conditions as of the end of the respective periods.
In the years ended December 31, 2020, 2019, and 2018, no outstanding stock awards were determined to be anti-
dilutive and therefore were excluded from the computation of diluted earnings per share.
In July 2020, the Company’s board of directors approved a two-for-one stock split in the form of a stock dividend,
payable on August 18, 2020, to stockholders of record as of the close of business on August 14, 2020. The Company’s
stockholders received one additional share of common stock for each share of common stock held on August 14, 2020.
The share and per share information for all periods presented in this Form 10-K has been adjusted for the effect of the
stock split.
56
11. PROVISION (BENEFIT) FOR INCOME TAXES:
Income Taxes
The Company accounts for income taxes under the provisions of ASC 740, Income Taxes. Under the provisions
of ASC 740, deferred tax assets and liabilities are recognized based on the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
U.S. and foreign components of income before income taxes were:
(In thousands)
U.S. operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2019
82,692 $
139,722
2020
(6,252) $
81,503
75,251 $ 222,414 $
2018
(6,529)
66,293
59,764
The components of the provision (benefit) for income taxes are as follows:
(In thousands)
Current provision (benefit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision (benefit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2019
2020
2018
2,788 $
(181)
1,677
4,284
18,293 $
184
1,293
19,770
(6,382)
4
938
(5,440)
348
—
(557)
(209)
4,075 $
9,683
—
(507)
9,176
28,946 $
(4,593)
—
(187)
(4,780)
(10,220)
The provision (benefit) for income taxes differs from the amount that would result by applying the applicable
federal income tax rate to income before income taxes, as follows:
Provision (benefit) computed at Federal statutory rate . . . . . . . . . . . . . . . .
Business tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign income taxed at different rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GILTI inclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Tax Act - transition tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset and liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2020
21.0 %
(7.4)
(0.1)
(22.0)
10.7
—
0.3
2.6
0.3
5.4 %
2019
21.0 %
(2.4)
(0.2)
(12.7)
6.2
0.1
—
0.8
0.2
13.0 %
2018
21.0 %
(9.1)
(2.2)
(25.0)
10.6
(16.2)
—
2.8
1.0
(17.1)%
The Company’s effective tax rate is impacted by the geographic distribution of the Company’s world-wide
earnings in lower-tax jurisdictions, federal research tax credits and the recognition of excess tax benefits related to share-
based payments. These benefits were partially offset by foreign income subject to U.S. tax, known as global intangible
low-taxed income. The Company’s primary jurisdiction where foreign earnings are derived is the Cayman Islands, which
is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. The Company has not been
granted any incentivized tax rates and does not operate under any tax holidays in any jurisdiction. Additionally, in 2018
the Company’s effective tax rate was favorably impacted by revisions to the Tax Act resulting in a $9.7 million income
tax benefit.
57
The components of the net deferred income tax assets (liabilities) were as follows:
(In thousands)
Deferred tax assets:
Other reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Tax credit carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31,
2020
2019
3,707 $
20,713
1,494
158
2,303
1,023
(24,160)
5,238
3,099
18,968
1,644
157
899
1,000
(20,822)
4,945
(1,974)
(1,974)
3,264 $
(2,273)
(2,273)
2,672
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income. In the event
that the Company determines, based on available evidence and management judgment, that all or part of the net deferred
tax assets will not be realized in the future, the Company would record a valuation allowance in the period the
determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact
of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the
Company’s expectations could have a material impact on its results of operations and financial position.
As of December 31, 2020, the Company continues to maintain a valuation allowance primarily as a result of
capital losses for federal purposes, and on its California, New Jersey and Canada deferred tax assets as the Company
believes that it is not more likely than not that the deferred tax assets will be fully realized.
As of December 31, 2020, the Company had utilized all of its federal research and development tax credit
carryforwards. As of December 31, 2020, the Company had California research and development tax credit carryforwards
of approximately $30.2 million (there is no expiration of research and development tax credit carryforwards for the state
of California) and California net operating losses of $44.7 million which will begin to expire in 2032. As of December 31,
2020, the Company had Canadian scientific research and experimental development tax credit carryforwards of
approximately $3.4 million and New Jersey research and experimental development tax credit carryforwards of
approximately $0.7 million, which will start to expire in 2030 and 2026, respectively.
The Tax Act signed into law on December 22, 2017, generally allows companies to repatriate accumulated
foreign earnings without incurring additional U.S. federal taxes beginning after December 31, 2017. Local foreign and
U.S. states taxes may still be incurred upon repatriation. The Company has not provided for U.S. taxes on its undistributed
earnings of foreign subsidiaries. The determination of the future tax consequences of the remittance of these earnings is
not practicable.
58
Unrecognized Tax Benefits
The Company applies the provisions of ASC 740-10, relating to accounting for uncertain income taxes.
Reconciliation of the beginning and ending amount of unrecognized tax benefits:
(In thousands)
Unrecognized Tax Benefits Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Increase for Tax Positions of Current Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Decrease for Tax Positions of Prior Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized Tax Benefits Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Increase for Tax Positions of Current Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Decrease for Tax Positions of Prior Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized Tax Benefits Balance at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Increase for Tax Positions of Current Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Decrease for Tax Positions of Prior Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized Tax Benefits Balance at December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized
Tax Benefits
$
$
16,683
1,994
(70)
18,607
1,379
(937)
19,049
2,002
—
21,051
The Company’s total unrecognized tax benefits as of December 31, 2020, 2019 and 2018, were $21.1 million,
$19.0 million and $18.6 million, respectively. An income tax benefit of $11.1 million, net of valuation allowance
adjustments, would be recorded if these unrecognized tax benefits are recognized. The Company cannot reasonably
estimate the amount of the unrecognized tax benefit that could be adjusted in the next twelve months.
The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in
income tax expense. The Company had accrued interest and penalties of $0.1 million as of both December 31, 2020 and
2019, which have been recorded in long-term income taxes payable in the accompanying consolidated balance sheets.
As of December 31, 2020, the Company has concluded all U.S. federal income tax matters for the years through
2012. However, due to tax attributes, the IRS may calculate tax adjustments for subsequent years for positions taken prior
to 2012. There are currently no pending income tax audits.
On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment
of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued by the
Tax Court in December 2015. In February 2016, the Commissioner appealed the Tax Court decision. On July 24, 2018,
the U.S. Ninth Circuit Court of Appeals reversed the U.S. Tax Court’s decision Altera Corp. v. Commissioner; the reversal
was subsequently withdrawn. On June 7, 2019, the Ninth Circuit Court of Appeals overturned the U.S. Tax Court decision;
finding that the Government had adequately supported in the record that stock-based compensation should be treated as
an intangible development cost in a cost-sharing arrangement and Treasury’s position on the issue was not a policy change,
holding stock-based compensation to be a compensable cost under IRC Section 482.
On February 10, 2020, Altera filed a petition for a writ of certiorari asking the Supreme Court to review the Ninth
Circuit’s decision. The Supreme Court’s denied the petition for certiorari, and thus the Ninth Circuit’s decision stands.
The decision above does not impact the Company as it treats stock-based compensation as a compensable cost under IRC
Section 482.
12. LEASES AND COMMITMENTS:
Facilities and Leases
The Company owns its main executive, administrative, manufacturing and technical offices in San Jose,
California. The Company also owns a research and development facility in New Jersey, a design center in Germany and a
test facility in Switzerland. The Company’s leases consist of operating leases for administrative office spaces, research-
and-development facilities and sales offices in various countries around the world. Effective January 1, 2019, the Company
adopted Accounting Standards Update 2016-02, Leases (Topic 842), using the optional transition method. The Company
determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components,
which are accounted for as a single lease component. Total lease expense was $2.7 million, $2.5 million and $2.2 million
in the years ended December 31, 2020, 2019 and 2018, respectively, while short-term and variable lease expenses were
not material during these periods.
59
Balance sheet information related to leases was as follows:
(In thousands)
Right-of-use assets
Operating lease assets . . . . . . . . . . . . . . . . . . . . . . . . Other assets
Lease liabilities
Current operating lease liabilities . . . . . . . . . . . . . . . Other accrued liabilities
Non-current operating lease liabilities . . . . . . . . . . . Other liabilities
Balance Sheet Classification
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2020
December 31,
2019
$
10,295 $
9,521
$
$
2,682 $
7,345
10,027 $
1,954
7,031
8,985
Initial lease terms are determined at commencement and may include options to extend or terminate the lease
when it is reasonably certain the Company will exercise the option. Remaining lease terms range from one to eight years,
some of which include options to extend for up to six years, and some of which include options to terminate within
one year. Leases with an initial term of twelve months or less are not recorded on the balance sheet. As the Company’s
leases do not provide an implicit rate, the present value of future lease payments is determined using the Company’s
incremental borrowing rate based on information available at commencement date.
Lease term and discount rate
Weighted average remaining lease term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
4.2 years
3.3 %
December 31,
December 31,
2019
4.8 years
3.9 %
Supplemental cash flows information related to leases was as follow:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Year Ended December 31,
2020
2019
Operating cash flows from operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Right-of-use assets obtained in exchange for new operating lease obligations . . . . . . . . $
2,459 $
2,947 $
2,964
4,884
Future minimum lease payments under all non-cancelable lease agreements as of December 31, 2020, are as
follows:
(In thousands)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2020
2,964
2,840
2,477
1,334
342
830
10,787
(760)
10,027
December 31,
Purchase Obligations
At December 31, 2020, the Company had no non-cancelable purchase obligations that were due beyond one year.
13. LEGAL PROCEEDINGS AND CONTINGENCIES:
From time to time in the ordinary course of business, the Company becomes involved in lawsuits, or customers
and distributors may make claims against the Company. In accordance with ASC 450-10, Contingencies, the Company
makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can
be reasonably estimated.
60
On April 1, 2016, Opticurrent, LLC filed a complaint against the Company in the United States District Court for
the Eastern District of Texas alleging that the Company infringed one patent pertaining to transistor switch devices and
seeking damages for the alleged infringement. The Company filed a motion to transfer the case to the Northern District of
California, which the Court granted, and the case was assigned to a new judge in San Francisco following the transfer. On
December 21, 2018, the Court granted the Company’s challenge to Opticurrent’s damages expert but denied the
Company’s motion for summary judgment. Following a trial in February 2019, a jury issued a finding of direct
infringement by the Company but found that the Company did not induce infringement, and awarded Opticurrent damages
of $6.7 million. The Company challenged those findings in post-trial proceedings, and the Court granted one of the
Company’s post-trial motions, reducing the damages award to $1.2 million. Although the Court of Appeals affirmed the
original findings and the reduced damages award, the Company believes it has strong defenses, and intends to continue to
vigorously defend itself against Opticurrent’s claims, including through a pending motion to set aside the judgment in
view of a disclaimer that Opticurrent made during reexamination proceedings, which has been fully briefed and argued,
with rulings expected in the coming months.
On June 19, 2019, Opticurrent, LLC filed a follow-on lawsuit in the United States District Court for the Northern
District of California accusing more of the Company’s products of infringement and seeking damages for the alleged
infringement of the same claim of the same patent asserted in the parties’ prior litigation, as described above. Limited
discovery has taken place, but proceedings are currently stayed pending resolution of the Company’s motion to set aside
the judgment in the parties’ prior litigation, and no schedule has yet been set for expert discovery, dispositive motions, or
trial. The Company believes it has strong defenses, and intends to vigorously defend itself against Opticurrent’s claims,
with appeals to follow if necessary.
On January 6, 2020, the Company filed a complaint against CogniPower LLC in the United States District Court
for the District of Delaware for infringement of two of the Company’s patents and seeking a declaration of non-
infringement with respect to patents that CogniPower had charged the Company’s customers with infringing, based on
customer use of the Company’s products. In response, CogniPower filed a motion to dismiss the Company’s declaratory
judgment claims on the basis that CogniPower had not threatened the Company directly with suit. That motion was granted,
so CogniPower’s claims for infringement initially went forward separately in their lawsuit against the Company’s
customers in the District of Delaware, but the Company filed a motion to intervene in that lawsuit and received a ruling
allowing the Company to intervene in CogniPower’s customer lawsuit on February 1, 2021. Fact discovery and claim
construction proceedings are now under way, but the Company believes it has strong claims and defenses, and intends to
vigorously defend itself against CogniPower’s claims against the Company’s technology, with appeals to follow if
necessary.
The Company is unable to predict the outcome of legal proceedings with certainty, and there can be no assurance
that Power Integrations will prevail in the above-mentioned unsettled litigations. These litigations, whether or not
determined in Power Integrations’ favor or settled, will be costly and will divert the efforts and attention of the Company’s
management and technical personnel from normal business operations, potentially causing a material adverse effect on the
business, financial condition and operating results. Currently, the Company is not able to estimate a loss or a range of loss
for the ongoing litigation disclosed above, however adverse determinations in litigation could result in monetary losses,
the loss of proprietary rights, subject the Company to significant liabilities, require Power Integrations to seek licenses
from third parties or prevent the Company from licensing the technology, any of which could have a material adverse
effect on the Company’s business, financial condition and operating results.
14. RETIREMENT PLANS:
The Company sponsors a defined benefit pension plan (Pension Plan) for its Swiss subsidiary in accordance with
the legal requirements of Switzerland. The plan assets, which provide benefits in the event of an employee’s retirement,
death or disability, are held in legally autonomous trustee-administered funds that are subject to Swiss law. Benefits are
based on the employee’s age, years of service and salary, and the plan is financed by contributions by both the employee
and the Company.
The net periodic benefit cost of the Pension Plan was not material to the Company’s financial statements during
the years ended December 31, 2020, 2019 and 2018. At December 31, 2020, the projected benefit obligation was $16.6
million, the plan assets were $9.7 million and the net pension liability was $6.9 million. As of December 31, 2019, the
projected benefit obligation was $14.8 million, the plan assets were $8.2 million, and the net pension liability was $6.6
million. The Company has recorded the unfunded amount as a liability in its consolidated balance sheet at December 31,
61
2020 and 2019, under the other liabilities caption. The Company expects to make contributions to the Pension Plan of
approximately $0.4 million during 2021. The unrealized actuarial loss on pension benefits, net of tax, at December 31,
2020, 2019 and 2018 was $1.6 million, $2.5 million and $0.7 million, respectively. These amounts were reflected in Note 3
under the caption accumulated other comprehensive loss.
In accordance with the Compensation-Retirement Benefits Topic of ASC 715-20, Defined Benefits Plan, the
Company recognizes the over-funded or under-funded status of its defined post-retirement plan as an asset or liability in
its statement of financial position. The Company measured the plan assets and benefit obligations as of the date of the
fiscal year-end.
15. BANK LINE OF CREDIT:
On July 27, 2016, the Company entered into a credit agreement with a bank (the "Credit Agreement") that
provides the Company with a $75.0 million revolving line of credit to use for general corporate purposes with a $20.0
million sub-limit for the issuance of standby and trade letters of credit. The Credit Agreement was amended on April 30,
2018, to extend the termination date from July 26, 2019, to April 30, 2022, with all other terms remaining the same. The
Company’s ability to borrow under the revolving line of credit is conditioned upon the Company’s compliance with
specified covenants, including reporting and financial covenants, primarily a minimum cash requirement and a debt to
earnings ratio. The Credit Agreement terminates on April 30, 2022; all advances under the revolving line of credit will
become due on such date, or earlier in the event of a default. The Company was compliant with all covenants and had no
advances outstanding under the Credit Agreement.
16. SELECTED QUARTERLY INFORMATION (Unaudited):
The following tables set forth certain data from the Company’s consolidated statements of income for each of the
quarters in the years ended December 31, 2020 and 2019.
The unaudited quarterly consolidated financial statements have been prepared on the same basis as the audited
consolidated financial statements contained herein and include all adjustments that the Company considers necessary for
a fair presentation of such information when read in conjunction with the Company’s annual audited consolidated financial
statements and notes thereto appearing elsewhere in this report. The operating results for any quarter are not necessarily
indicative of the results for any subsequent period or for the entire fiscal year.
Three Months Ended
(unaudited)
Dec. 31,
2020
Sept. 30,
June 30,
Mar. 31,
Sept. 30,
Dec. 31,
2019(1)
June 30,
2019
Mar. 31,
2019
2020
(In thousands, except per share data)
Net revenues . . . . . . . . . . . . . . . . . . . $ 150,693 $ 121,129 $ 106,832 $ 109,664 $ 114,457 $ 114,159 $ 102,865 $ 89,188
45,474
Gross profit . . . . . . . . . . . . . . . . . . . .
7,233
Net income . . . . . . . . . . . . . . . . . . . . $
Earnings per share (2)
56,480
15,886 $ 158,291 $
74,005
27,278 $
59,569
14,820 $
53,536
13,192 $
51,572
10,845 $
58,131
17,099 $
58,225
2020
2020
2019
Basic . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . $
Shares used in per share calculation (2)
Basic . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . .
0.46 $
0.45 $
0.25 $
0.24 $
0.22 $
0.22 $
0.27 $
0.27 $
2.69 $
2.64 $
0.29 $
0.29 $
0.19 $
0.19 $
0.13
0.13
59,879
61,176
59,823
60,852
59,712
60,624
59,204
60,268
58,854
60,010
58,770
59,732
58,594
59,404
57,902
58,892
(1) In October 2019, the Company entered into a favorable litigation settlement with ON Semiconductor Corporation
which resulted in a $169.0 million net gain.
(2) In July 2020, the Company’s board of directors approved a two-for-one stock split in the form of a stock dividend,
payable on August 18, 2020, to stockholders of record as of the close of business on August 14, 2020. The Company’s
stockholders received one additional share of common stock for each share of common stock held on August 14,
2020. The share and per share information for all periods presented in this Form 10-K has been adjusted for the effect
of the stock split (Refer to Note 10, Earnings Per Share, in this Form 10-K for details).
62
Schedule II
Valuation and Qualifying Accounts
The Company maintains an allowance for the distributors’ ship and debit credits relating to the sell-through of
the Company’s products. This reserve is established using the Company’s historical ship and debit amounts and levels of
inventory in the distributor channels.
The following is a summary of the activity in the allowance for ship and debit credits:
Balance at Charged to
(In thousands)
Allowance for ship and debit credits:
Year ended December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year ended December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . $
Year ended December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . $
Beginning of
Period
Costs and
Expenses
Deductions(1)
Balance at End
of Period
39,486 $ 242,068 $ (241,436) $
40,118 $ 230,278 $ (236,921) $
33,475 $ 257,765 $ (264,805) $
40,118
33,475
26,435
(1) Deductions relate to ship and debit credits issued which adjust the sales price from the standard distribution price to
the pre-approved lower price. Refer to Note 2, Significant Accounting Policies and Recent Accounting
Pronouncements, for the Company’s revenue recognition policy, including the Company’s accounting for ship and
debit claims.
63
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management is required to evaluate our disclosure controls and procedures, as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended, or the Exchange Act. Disclosure controls and procedures are controls
and other procedures designed to provide reasonable assurance that information required to be disclosed in our reports
filed under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate
to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include components of
our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally
accepted accounting principles in the U.S. To the extent that components of our internal control over financial reporting
are included within our disclosure controls and procedures, they are included in the scope of our periodic controls
evaluation. Based on our management’s evaluation (with the participation of our principal executive officer and principal
financial officer), our principal executive officer and principal financial officer have concluded that our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the
period covered by this report.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with generally accepted accounting principles. Internal control over financial reporting
includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles and that receipts and
expenditures are being made only in accordance with authorizations of our management and
directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Because of
such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting.
Management conducted an assessment of Power Integrations’ internal control over financial reporting as of
December 31, 2020, based on the framework established by the Committee of Sponsoring Organization (COSO) of the
Treadway Commission in Internal Control - Integrated Framework issued in 2013. Based on this assessment, management
concluded that, as of December 31, 2020, our internal control over financial reporting was effective.
The effectiveness of Power Integrations’ internal control over financial reporting as of December 31, 2020, has
been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which
appears below.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the fourth quarter of 2020, which
were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under
the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over
financial reporting.
64
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Power Integrations, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Power Integrations, Inc. and subsidiaries (the “Company”)
as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company
and our report dated February 5, 2021 expressed an unqualified opinion on those consolidated financial statements and
included an explanatory paragraph relating to the Company’s adoption of Accounting Standards Update (ASU) 2016-02,
Leases (Topic 842).
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 5, 2021
65
Item 9B. Other Information.
Compensation Matters
On February 1, 2021, the Compensation Committee of the Board of Directors of Power Integrations, Inc. (the
“Company”) took the following compensation actions with respect to the Company’s chief executive officer, chief
financial officer, and other “named executive officers” as defined in Rule 402 of SEC Regulation S-K (collectively, the
“Officers”).
2021 Performance-based Incentive Plan
Approved the 2021 Performance-based Incentive Plan (the “2021 PSU Plan”) as follows:
Each Officer, as described below, was granted performance stock units, referred to as “PSUs,” which will vest
(referred to as a “payout” below) based on Company performance as against the 2021 PSU Plan’s established net revenue
targets, non-GAAP operating income targets and strategic goals, each as established by the Compensation Committee. The
2021 target net revenue and non-GAAP operating income levels are intended to have difficulty in attainment levels
consistent with the Company’s 2020 PSU Plan.
The portion of the performance stock units granted under the 2021 PSU Plan that will vest will be calculated
independently for each of its net revenue, non-GAAP operating income and strategic goals components. “Net revenue” is
as set forth in the Company’s annual report for 2021 to be filed with the Securities and Exchange Commission (“SEC”).
“Non-GAAP operating income” means operating income for 2021 determined in accordance with GAAP but excluding
the following items: (i) stock-based compensation expenses recorded under Accounting Standards Codification 718;
(ii) amortization of acquisition-related intangible assets, and the fair-value write-up of acquired inventory; (iii) any other
mergers and acquisitions related expenses; and (iv) any other adjustment made to arrive at the Company’s non-GAAP
financial information as presented in the Company’s SEC filings. Further, in the event of any mergers, acquisitions or
divestitures, or any patent or other litigation settlements or judgments, during the performance period, the net revenue and
non-GAAP operating income targets shall be adjusted based on a revised plan approved by the Board of Directors. The
strategic goals component is made up of five different strategic goals for the Company.
Weighting of the target components is as follows:
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40 %
30 %
30 %
100 %
Net Revenue Component of the 2021 PSU Plan:
No payout will be made under the net revenue component of the 2021 PSU Plan if the Company’s 2021 actual
net revenue does not exceed at least the established minimum amount of net revenue as set forth in the 2021 PSU Plan. To
the extent 2021 actual net revenue is above the minimum amount of net revenue, the payout increases linearly from zero
at the minimum amount of net revenue as set forth in the 2021 PSU Plan up to 100% of the net revenue component of the
target when actual net revenue equals target net revenue in the 2021 PSU Plan. If 2021 actual net revenue is above the
target amount of net revenue, then the payout for performance above target increases linearly from the target amount up
to a maximum of 200% of the net revenue component of the target when actual net revenue equals or exceeds the
established target to achieve the maximum payout under the net revenue component of the 2021 PSU Plan.
Non-GAAP Operating Income Component of the 2021 PSU Plan:
No payout will be made under the non-GAAP operating income component of the 2021 PSU Plan if the
Company’s 2021 actual non-GAAP operating income does not exceed at least the established minimum amount of non-
GAAP operating income as set forth in the 2021 PSU Plan. To the extent 2021 actual non-GAAP operating income is
above the minimum amount of non-GAAP operating income, the payout increases linearly from zero at the minimum
amount of non-GAAP operating income as set forth in the 2021 PSU Plan up to 100% of the non-GAAP operating income
component of the target when actual non-GAAP operating income equals target non-GAAP operating income in the 2021
PSU Plan. If 2021 actual non-GAAP operating income is above the target amount of non-GAAP operating income, then
66
the payout for performance above target increases linearly from the target amount up to a maximum of 200% of the non-
GAAP operating income component of the target when actual non-GAAP operating income equals or exceeds the
established target to achieve the maximum payout under the non-GAAP operating income component of the 2021 PSU
Plan.
Strategic Goals Component of the 2021 PSU Plan:
Each of the five goals in the strategic goals component of the 2021 PSU Plan is assigned a weighting percentage,
which percentages range from 2% to 14%, and which collectively add up to 30%. If the Company’s 2021 actual
achievement of a goal does not exceed at least the established minimum requirement for a particular goal, then no amount
is earned for that goal. To the extent 2021 actual performance for a goal is better than the established minimum for the
goal, then the payout increases linearly from zero at the minimum amount of performance as set forth in the 2021 PSU
Plan up to 100% of the amount for that goal when actual performance equals target performance for that goal in the 2021
PSU Plan. To the extent 2021 actual performance for a goal is better than the established target for the goal, then the payout
for performance above target increases linearly from the target amount actual performance, up to a maximum of 200% for
the specific goal when actual performance equals or exceeds the established target to achieve the maximum payout under
the specific goal as set forth in the 2021 PSU Plan.
2021 Target Performance Stock Units
Approved the 2021 target performance stock units for the Officers as follows:
Title
Executive Officer
Balu Balakrishnan . . . . . . . . . . . . . . . . President and Chief Executive Officer
Sandeep Nayyar . . . . . . . . . . . . . . . . . . Chief Financial Officer
Radu Barsan . . . . . . . . . . . . . . . . . . . . . Vice President, Technology
David “Mike” Matthews . . . . . . . . . . . Vice President, Product Development
Ben Sutherland . . . . . . . . . . . . . . . . . . Vice President, Worldwide Sales
2021 Target PSUs
11,000
3,500
3,000
2,300
2,300
The actual number of shares subject to the performance stock units is twice the target level shown in the table
above to enable the payout of up to 200% of the target amount if the actual net revenue, non-GAAP operating income and
strategic goals achievement equal or exceed the established levels to achieve the maximum amount of the 2021 PSU Plan.
2021 Restricted Stock Unit Grants
Approved restricted stock units, referred to as “RSUs,” grants to the following Officers:
Title
Executive Officer
Balu Balakrishnan . . . . . . . . . . . . . . . . President and Chief Executive Officer
Sandeep Nayyar . . . . . . . . . . . . . . . . . . Chief Financial Officer
Radu Barsan . . . . . . . . . . . . . . . . . . . . . Vice President, Technology
David “Mike” Matthews . . . . . . . . . . . Vice President, Product Development
Ben Sutherland . . . . . . . . . . . . . . . . . . Vice President, Worldwide Sales
2021 RSU Grants
30,000
12,000
9,900
7,500
7,500
The RSU grants will be effective on the grant date. Twenty-five percent (25%) of the RSUs vest on the one-year
anniversary of the vesting commencement date (as specified in the Officers’ RSU award agreements), and an additional
twenty-five percent (25%) of the RSUs vest annually over the next three (3) years thereafter, subject to the respective
Officer’s continuous service.
2021 Long-term Performance-Based Incentive Plan
Approved the 2021 Long-term Performance-Based Incentive Plan (“2021 PRSU Plan”) as follows:
Each Officer, as described below, was granted long term performance stock units, referred to as “PRSUs,” which
will vest (referred to as a “payout” below) based on Company revenue performance as against the 2021 PRSU Plan’s
established three-year (years 2021, 2022 and 2023) compound annual growth rate (“CAGR”) of revenue as measured
against a specified index of the analog semiconductor industry CAGR (the “Index”). The level of performance of the
Company’s three-year revenue CAGR as against the Index is intended to have a difficulty in attainment level consistent
67
with the Company’s 2020 PRSU Plan. The portion of the performance stock units that will vest will be calculated based
on the Company’s actual three-year revenue CAGR as compared to the Index and awarded in early 2024 upon approval
by the Compensation Committee. In the event of any mergers, acquisitions or divestitures, or any patent or other litigation
settlements or judgments, during the performance period, the Company’s target three-year revenue CAGR as against the
Index shall be adjusted based on a revised plan approved by the Board of Directors.
No payout will be made in early 2024 under the 2021 PRSU Plan if the Company’s actual three-year revenue
CAGR does not exceed at least the established minimum amount as measured against the Index as set forth in the 2021
PRSU Plan. To the extent the Company’s actual three-year revenue CAGR exceeds at least the established minimum
amount as measured against the Index as set forth in the 2021 PRSU Plan, the payout increases linearly from zero at the
minimum CAGR performance level as measured against the Index as set forth in the 2021 PRSU Plan up to 100% when
the Company’s actual three-year revenue CAGR equals the target at the specified level as set forth in the 2021 PRSU Plan.
If the Company’s actual three-year revenue CAGR exceeds the target, then the payout for performance above target
increases linearly from the target amount up to a maximum of 200% of the target when the Company’s actual three-year
revenue CAGR equals or exceeds the established amount to achieve the maximum payout as set forth in the 2021 PRSU
Plan. Except to the extent provided in the executive officer benefits agreements between the Company and each Officer,
each Officer must be employed by the Company through the end of the performance period to receive stock pursuant to
the PRSUs under the 2021 PRSU Plan.
2021 Target PRSUs
Approved the target 2021 PRSUs for the Officers as follows:
Title
Executive Officer
Balu Balakrishnan . . . . . . . . . . . . . . . . President and Chief Executive Officer
Sandeep Nayyar . . . . . . . . . . . . . . . . . . Chief Financial Officer
Radu Barsan . . . . . . . . . . . . . . . . . . . . . Vice President, Technology
David “Mike” Matthews . . . . . . . . . . . Vice President, Product Development
Ben Sutherland . . . . . . . . . . . . . . . . . . Vice President, Worldwide Sales
2021 Target PRSUs
30,000
4,000
3,300
2,500
2,500
The actual number of shares subject to the PRSUs is twice the target level shown in the table above to enable the
payout of up to 200% of the target amount if actual net revenue equals or exceeds the established level to achieve the
maximum amount of the 2021 PRSU Plan.
2021 Salaries
Approved the 2021 salaries for the Officers, to be effective at the end of March 2021, as follows:
Executive Officer
Title
Balu Balakrishnan . . . . . . . . . . . . . . . President and Chief Executive Officer $
$
Sandeep Nayyar . . . . . . . . . . . . . . . . . Chief Financial Officer
Radu Barsan . . . . . . . . . . . . . . . . . . . . Vice President, Technology
$
David “Mike” Matthews . . . . . . . . . . Vice President, Product Development $
$
Ben Sutherland . . . . . . . . . . . . . . . . . Vice President, Worldwide Sales
2021 Salary
665,000
410,000
385,000
350,000
350,000
68
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The names of our executive officers and their ages, titles and biographies as of the date hereof are set forth under
the caption “Information About our Executive Officers” in Part I, Item 1, above.
The following information is included in our Notice of Annual Meeting of Stockholders and Proxy Statement to
be filed within 120 days after our fiscal year end of December 31, 2020, or the Proxy Statement, and is incorporated herein
by reference:
•
•
•
•
•
Information regarding our directors and any persons nominated to become a director is set forth under
the caption “Proposal 1 Election of Directors.”
Information regarding our audit committee and our designated “audit committee financial expert” is set
forth under the captions “Information Regarding the Board and its Committees” and “Audit Committee”
under “Proposal 1 Election of Directors” and “Report of the Audit Committee of the Board.”
Information on our code of business conduct and ethics for directors, officers and employees is set forth
under the caption “Code of Business Conduct and Ethics” under “Proposal 1 Election of Directors.”
Information regarding Section 16(a) beneficial ownership reporting compliance, if any, will be set forth
under the caption “Delinquent Section 16(a) Reports.”
Information regarding procedures by which stockholders may recommend nominees to our board of
directors is set forth under the caption “Nominating and Governance Committee” under “Proposal 1
Election of Directors.”
Item 11. Executive Compensation.
Information regarding compensation of our named executive officers is set forth under the caption “Compensation
of Executive Officers” in the Proxy Statement, which information is incorporated herein by reference.
Information regarding compensation of our directors is set forth under the caption “Compensation of Directors”
in the Proxy Statement, which information is incorporated herein by reference.
Information relating to compensation policies and practices as they relate to risk management is set forth under
the caption “Compensation Policies and Practices as They Relate to Risk Management” under “Proposal 1 Election of
Directors” in the Proxy Statement, which information is incorporated herein by reference.
Information regarding compensation committee interlocks is set forth under the caption "Compensation
Committee Interlocks and Insider Participation" in the Proxy Statement, which information is incorporated herein by
reference.
The Compensation Committee Report is set forth under the caption “Compensation Committee Report” in the
Proxy Statement, which report is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding security ownership of certain beneficial owners, directors and executive officers is set forth
under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement, which
information is incorporated herein by reference.
Information regarding our equity compensation plans, including both stockholder approved plans and non-
stockholder approved plans, is set forth under the caption “Equity Compensation Plan Information” in the Proxy Statement,
which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships and related transactions is set forth under the caption “Certain
Relationships and Related Transactions” in the Proxy Statement, which information is incorporated herein by reference.
Information regarding director independence is set forth under the caption “Proposal 1 - Election of Directors” in
the Proxy Statement, which information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information regarding principal auditor fees and services is set forth under “Principal Accountant Fees and
Services” in the Proposal with the caption “Ratification of Selection of Independent Registered Public Accounting Firm”
in the Proxy Statement, which information is incorporated herein by reference.
69
Item 15. Exhibits, Financial Statement Schedules
(a)
PART IV
1. The financial statements required by Item 15(a) are included in Item 8 of this Annual Report on Form 10-K.
2. The financial statement schedule required by Item 15(a) (Schedule II, Valuation and Qualifying Accounts) is
included in Item 8 of this Annual Report on Form 10-K.
All other schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
(b) Exhibits
Exhibit
Number
Exhibit Description
3.1 Restated Certificate of Incorporation
Form
10-K
File
Number
000-23441
Incorporation by Reference
Exhibit/Appendix
Reference
3.1
Filing Date
2/29/2012
Filed
Herewith
3.2 Amended and Restated Bylaws
8-K
000-23441
4.1 Description of Power Integrations, Inc.
10-K
000-23441
Common Stock
3.1
4.1
4/26/2013
2/6/2020
4.2 Reference is made to Exhibits 3.1 to 3.2
10.1* Form of Indemnity Agreement for directors
S-1
333-35421
10.1
9/11/1997
and officers
10.2* Power Integrations, Inc. Compliance Policy
10-K
000-23441
10.63
3/2/2009
Regarding IRC Section 409A
10.3* 1997 Employee Stock Purchase Plan, as
10-Q
000-23441
10.1
10/29/2020
amended
10.4* Forms of agreement under 1997 Employee
S-1
333-35421
10.5
9/11/1997
Stock Purchase Plan
10.5* 1997 Outside Directors Stock Option Plan
10-Q
000-23441
10.6* Forms of agreement under 1997 Outside
S-1
333-35421
Directors Stock Option Plan
10.7* Form of Director Option Grant Agreement.
10-Q
000-23441
10.8* Director Equity Compensation Program
10-K
000-23441
10.9* Forms of Stock Option Agreements to be
10-Q
000-23441
used in Director Equity Compensation
Program
10.2
10.4
10.9
10.1
10.5
10/29/2020
9/11/1997
5/6/2009
2/7/2020
11/7/2008
10.10* Outside Director Cash Compensation
10-K
000-23441
10.12
2/7/2020
Arrangements
10.11* 2007 Equity Incentive Plan, as amended and
10-Q
000-23441
10.3
10/29/2020
restated
10.12* Forms of Option Agreements under the 2007
Schedule TO 000-23441
99.(D)(4)
12/3/2008
Equity Incentive Plan
70
10.13* Form of Restricted Stock Unit Grant Notice
10-Q
000-23441
10.1
5/6/2010
and Form of Restricted Stock Unit Award
Agreement under the 2007 Equity Incentive
Plan
10.14* Form of Performance Stock Unit Grant
10-K
000-23441
10.29
2/22/2013
Notice and Performance Stock Unit
Agreement (as used after to January 1, 2013)
under the 2007 Equity Incentive Plan
10.15* Form of Long Term Performance Stock Unit
Notice and Agreement under the 2007 Equity
Incentive Plan
10-K
000-23441
10.84
2/10/2015
10.16* Power Integrations, Inc. Amended and
10-Q
000-23441
10.4
10/29/2020
Restated 2016 Incentive Award Plan
10.17* Form of Restricted Stock Unit Grant Notice
10-K
000-23441
10.25
2/8/2017
and Agreement under the 2016 Incentive
Award Plan
10.18* Form of Performance Stock Unit Notice and
Agreement under the 2007 Equity Incentive
Plan
10.19* Form of Long Term Performance Stock Unit
Notice and Agreement under the 2007 Equity
Incentive Plan
10-K
000-23441
10.26
2/8/2017
10-K
000-23441
10.27
2/8/2017
10.21† Wafer Supply Agreement between us and
10-Q
000-23441
10.32
8/7/2003
ZMD Analog Mixed Signal Services GmbH
& Co. KG, dated as of May 23, 2003
10.22† Amended and Restated Wafer Supply
10-Q
000-23441
10.31
8/7/2003
Agreement between us and OKI Electric
Industry Co., Ltd., dated as of April 1, 2003
10.23† Amendment Number One to the Amended
8-K
000-23441
10.22
4/18/2006
and Restated Wafer Supply Agreement
between us and OKI Electric Industry Co.,
Ltd., effective as of August 11, 2004
10.24 Amendment Number Two to the Amended
10-Q
000-23441
10.5
8/8/2008
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Electric Industry Co., Ltd.,
effective as of April 1, 2008
10.25 Amendment Number Three to the Amended
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Electric Industry Co., Ltd.,
effective as of June 9, 2008
10-Q
000-23441
10.6
8/8/2008
10.26† Amendment Number Four to the Amended
10-Q
000-23441
10.2
11/7/2008
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Electric Industry Co., Ltd.,
dated September 15, 2008
71
10.27† Amendment Number Five to the Amended
10-K
000-23441
10.61
3/2/2009
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Semiconductor Co., Ltd.,
effective as of November 14, 2008
10.28† Amendment Number Six to the Amended and
10-K
000-23441
10.32
2/11/2016
Restated Wafer Supply Agreement between
Power Integrations International, Ltd. and
OKI Semiconductor Co., Ltd., effective as of
November 1, 2015
10.29† Amendment Number Seven to the Amended
10-Q
000-23441
10.1
11/1/2016
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Semiconductor Co., Ltd.,
effective as of August 8, 2016
10.30† Amendment Number Eight to the Amended
10-Q
000-23441
10.1
10/26/2017
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Semiconductor Co., Ltd.,
effective as of July 26, 2017
10.31†† Amendment Number Nine to the Amended
10-Q
000-23441
10.2
4/25/2019
and Restated Wafer Supply Agreement,
between Power Integrations International,
Ltd. and Lapis Semiconductor Co., Ltd.
(formerly OKI Semiconductor Co., Ltd.),
effective as of February 6, 2019
10.32† Wafer Supply Agreement, between Seiko
Epson Corporation and Power Integrations
International, Ltd. effective as of April 1,
2005
10-Q
000-23441
10.1
11/7/2008
10.33† Amendment Number One to the Wafer
10-Q
000-23441
10.1
5/6/2009
Supply Agreement between Power
Integrations International, Ltd. and Seiko
Epson Corporation, with an effective date of
December 19, 2008
10.34† Amendment Number Two to Wafer Supply
Agreement, between Seiko Epson
Corporation and Power Integrations
International, Ltd., entered into on January 5,
2011
10.35† Amendment Number Three to Wafer Supply
Agreement, effective as of February 1, 2012,
by Power Integrations International Ltd. and
Seiko Epson Corporation
10.36† Development Addendum to Wafer Supply
Agreement, dated September 22, 2013,
between Seiko Epson Corporation and Power
Integrations International Ltd
10-K
000-23441
10.47
2/25/2011
X
X
72
10.37† Amendment Number Four to Wafer Supply
Agreement, effective as of April 1, 2015, by
Power Integrations International Ltd. and
Seiko Epson Corporation
10.38† Amendment Number Five to Wafer Supply
Agreement, effective as of November 2,
2015, by Power Integrations International
Ltd. and Seiko Epson Corporation
10.39† Amendment Number Six to Wafer Supply
Agreement, effective as of December 8,
2015, by Power Integrations International
Ltd. and Seiko Epson Corporation
10.40† Amendment Number Seven to Wafer Supply
Agreement, effective as of October 3, 2016,
by Power Integrations International Ltd. and
Seiko Epson Corporation
X
X
X
10-K
000-23441
10.46
2/8/2017
10.41† Amendment Number Eight to Wafer Supply
10-K
000-23441
10.47
2/8/2017
Agreement, effective as of November 8, 2016
by Power Integrations International Ltd. and
Seiko Epson Corporation
10.42† Amendment Number One to the Amended
10-K
000-23441
10.66
2/26/2010
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and XFAB Dresden GmbH & Co. KG,
effective as of July 20, 2005
10.43† Wafer Supply Agreement, made and entered
10-Q
000-23441
10.2
5/8/2012
into as of October 1, 2010, by and between
Power Integrations International, Ltd., and X-
FAB Semiconductor Foundries AG
10.44† Amendment Number One to Wafer Supply
Agreement, effective as of January 1, 2014,
between Power Integrations International,
Ltd., and X-FAB Semiconductor Foundries
AG
10-Q/A
000-23441
10.2
9/19/2014
10.45† Amendment Number Two to the Wafer
10-K
000-23441
10.52
2/13/2019
Supply Agreement, effective as of December
1, 2018, between Power Integrations
International, Ltd., and X-FAB
Semiconductor Foundries GmbH (formerly
X-FAB Semiconductor Foundries AG)
10.46 Credit Agreement, dated July 27, 2016, by
10-Q
000-23441
10.1
7/29/2016
and between Power Integrations Inc. and
Wells Fargo Bank, National Association
10.47 First Amendment to Credit Agreement, dated
April 30, 2018 by and between Power
Integrations, Inc. and Wells Fargo Bank,
National Association
10-Q
000-23441
10.1
7/26/2018
73
10.48* 2019 Executive Officer Compensation
10-K
000-23441
Item 9B
2/13/2019
Arrangements and 2019 Performance Based
Incentive Plan
10.49* 2018 Executive Officer Cash Compensation
Arrangements and 2018 Performance Based
Incentive Plan
10-K
000-23441
Item 9B
2/14/2018
10.50* Form of Restricted Stock Unit Grant Notice
10-Q
000-23441
10.6
8/6/2010
and Form of Restricted Stock Unit Award
Agreement for executive officers for use
prior to January 2013
10.51* Form of Restricted Stock Unit Grant Notice
10-K
000-23441
10.48
2/22/2013
and Form of Restricted Stock Unit Award
Agreement for executive officers for use after
January 2013
10.52* Amended and Restated Chief Executive
10-Q
000-23441
10.3
5/5/2014
Officer Benefits Agreement, dated as of May
1, 2014, between Power Integrations, Inc. and
Balu Balakrishnan
10.53* Amended and Restated Executive Officer
10-Q
000-23441
10.5
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Cliff Walker
10.54* Amended and Restated Executive Officer
10-Q
000-23441
10.6
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Doug Bailey
10.55* Amended and Restated Executive Officer
10-Q
000-23441
10.7
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Ben Sutherland
10.56* Amended and Restated Executive Officer
10-Q
000-23441
10.8
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Sandeep Nayyar
10.57* Amended and Restated Executive Officer
10-Q
000-23441
10.10
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Mike Matthews
10.58* Amended and Restated Executive Officer
10-Q
000-23441
10.11
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Radu Barsan
10.60†† ON Semiconductor Corporation Settlement
10-K
000-23441
10.61
2/7/2020
Agreement
10.61†† ON Semiconductor Corporation Term Sheet
10-K
000-23441
10.62
2/7/2020
74
10.62† Amendment Number Ten to the Amended
10-Q
000-23441
10.1
5/7/2020
and Restated Wafer Supply Agreement,
between Power Integrations International,
Ltd. and Lapis Semiconductor Co., Ltd.
(formerly OKI Semiconductor Co., Ltd.),
effective as of December 16, 2019
10.63† Amendment Number Eleven to the Amended
and Restated Wafer Supply Agreement,
between Power Integrations International,
Ltd. and Lapis Semiconductor Co., Ltd.
(formerly OKI Semiconductor Co., Ltd.),
effective as of December 20, 2019
10-Q
000-23441
10.2
5/7/2020
10.64† Amendment Number Nine to Wafer Supply
10-Q
000-23441
10.3
5/7/2020
Agreement, effective as of November 1, 2017
by Power Integrations International Ltd. and
Seiko Epson Corporation
10.65* 2020 Compensation Arrangements with
10-K
000-23441
Item 9B
2/7/2020
Named Executive Officers
10.66* Amendment to the Amended and Restated
10-Q
000-23441
10.2
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Balu Balakrishnan
10.67* Amendment to the Amended and Restated
10-Q
000-23441
10.3
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Douglas Bailey
10.68* Amendment to the Amended and Restated
10-Q
000-23441
10.4
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Radu Barsan
10.69* Amendment to the Amended and Restated
10-Q
000-23441
10.5
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Ben Sutherland
10.70* Amendment to the Amended and Restated
10-Q
000-23441
10.6
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Mike Matthews
10.71* Amendment to the Amended and Restated
10-Q
000-23441
10.7
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Sandeep Nayyar
10.72* Amendment to the Amended and Restated
10-Q
000-23441
10.9
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Clifford Walker
10.73* Executive Officer Benefits Agreement, dated
as of February 1, 2020, between Power
Integrations, Inc. and Sunil Gupta
75
X
10.74 Amendment Number Ten to Wafer Supply
Agreement, effective as of August 26, 2020
by Power Integrations International Ltd. and
Seiko Epson Corporation
21.1 List of subsidiaries
23.1 Consent of Independent Registered Public
Accounting Firm
24.1 Power of Attorney (see signature page)
31.1 Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
31.2 Certification of Chief Financial Officer
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32.1** Certification of Chief Executive Officer
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2** Certification of Chief Financial Officer
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
Document
101.CAL XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase
Document
101.PRE XBRL Taxonomy Extension Presentation
Linkbase Document
104 The cover page from this Annual Report on
Form 10-K, formatted in Inline XBRL.
10-Q
000-23441
10.5
10/29/2020
X
X
X
X
X
X
X
X
X
X
X
X
X
X
All references in the table above to previously filed documents or descriptions are incorporating those documents
and descriptions by reference thereto.
† This Exhibit has been filed separately with the Commission pursuant to an application for confidential treatment. The
confidential portions of this Exhibit have been omitted and are marked by an asterisk.
†† Portions of this exhibit have been omitted as being immaterial and would be competitively harmful if disclosed.
*
Indicates a management contract or compensatory plan or arrangement.
** The certifications attached as Exhibits 32.1 and 32.2 accompanying this Form 10-K, are not deemed filed with the
SEC, and are not to be incorporated by reference into any filing of Power Integrations, Inc. under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of
this Form 10-K, irrespective of any general incorporation language contained in such filing.
Item 16. Form 10-K Summary
Not provided.
76
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
POWER INTEGRATIONS, INC.
SIGNATURES
Dated: February 5, 2021
By:
/s/ SANDEEP NAYYAR
Sandeep Nayyar
Chief Financial Officer (Duly Authorized Officer,
Principal Financial Officer and Chief Accounting
Officer)
77
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Balu Balakrishnan and Sandeep Nayyar his or her true and lawful attorney-in-fact and agent, with full power
of substitution and, for him or her and in his or her name, place and stead, in any and all capacities to sign any and all
amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as
fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED.
Dated: February 5, 2021
Dated: February 5, 2021
Dated: February 5, 2021
Dated: February 5, 2021
Dated: February 5, 2021
Dated: February 5, 2021
Dated: February 5, 2021
Dated: February 5, 2021
Dated: February 5, 2021
/s/ BALU BALAKRISHNAN
Balu Balakrishnan
President, Chief Executive Officer
(Principal Executive Officer)
/s/ SANDEEP NAYYAR
Sandeep Nayyar
Chief Financial Officer
(Principal Financial and Principal Accounting
Officer)
/s/ WILLIAM GEORGE
William George
Director and Chairman of the Board
/s/ WENDY ARIENZO
Wendy Arienzo
Director
/s/ NICHOLAS E. BRATHWAITE
Nicholas E. Brathwaite
Director
/s/ ANITA GANTI
Anita Ganti
Director
/s/ BALAKRISHNAN S. IYER
Balakrishnan S. Iyer
Director
/s/ NECIP SAYINER
Necip Sayiner
Director
/s/ STEVEN J. SHARP
Steven J. Sharp
Director
By:
By:
By:
By:
By:
By:
By:
By:
By:
78
Balu Balakrishnan
President and Chief Executive Officer
Corporate Counsel
Cooley LLP
Palo Alto, CA
Doug Bailey
Vice President, Marketing
Radu Barsan
Vice President, Technology
Sunny Gupta
Vice President, Operations
Mike Matthews
Vice President, Product Development
Sandeep Nayyar
Vice President, Finance
Chief Financial Officer
Ben Sutherland
Vice President, Worldwide Sales
Clifford J. Walker
Vice President,
Corporate Development
Transfer Agent
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Independent Auditors
Deloitte & Touche LLP
San Jose, CA
Investor Information
For additional information about
Power Integrations, visit:
www.power.com
Investor Relations
Investor Relations Department
Power Integrations, Inc.
5245 Hellyer Avenue
San Jose, CA 95138
ir@power.com
William L. George (Chairman)
Former Executive Vice President
ON Semiconductor Corporation,
Retired
Wendy A. Arienzo
Vice President, Operations
FUJIFILM Dimatix, Inc.
Balu Balakrishnan
President and Chief Executive Officer
Power Integrations, Inc.
Nicholas E. Brathwaite
Partner, Riverwood Capital LLC
Anita Ganti
Former Senior Vice President,
Product Engineering Services
Wipro Limited
Balakrishnan S. Iyer
Former Senior Vice President
and Chief Financial Officer
Conexant Systems, Inc., Retired
Jennifer A. Lloyd
Vice President,
Precision Platforms
and Technology Group
Analog Devices, Inc.
Necip Sayiner
Former Executive Vice President
Renesas Electronics Corporation
Steven J. Sharp
Former Chairman and CEO
TriQuint Semiconductor, Inc., Retired
Power Integrations, Inc. 5245 Hellyer Avenue, San Jose, CA 95138 www.power.com
©2021 Power Integrations. Power Integrations and the Power Integrations logo are registered trademarks of Power Integrations, Inc.
All rights reserved.
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